Final Results and NAV Update

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23.02.2021, 08:00  |  162   |   |   

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED.  ON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.

23 February 2021

Seneca Growth Capital VCT plc

Annual Report and Financial Statements
for the year ended 31 December 2020
NAV Update
and
Notice of Annual General Meeting

The Directors are pleased to announce the audited results of the Company for the year ended 31 December 2020. A copy of the Annual Report and Financial Statements will be made available to shareholders shortly, and extracts are now set out below.

The Company’s AGM will be a closed meeting as a result of the Covid-19 (“C-19”) pandemic and will be held at 14:00 on Monday, 29 March 2021 at 9 The Parks, Haydock, WA12 0JQ. A copy of the Notice of AGM and Annual Report and Accounts will be available on the Company’s website: www.senecavct.co.uk

Financial Headlines

Ordinary Shares
95.5p Ordinary share NAV plus cumulative dividends paid at 31 December 2020 (“Total Return”)
30.2p Ordinary share NAV at 31 December 2020
13.0p Interim capital dividends paid per Ordinary share during year
  B Shares
£2.4m Amount raised during the year from the issue of B shares
£1.36m Amount invested during the year into six new investee companies by B share pool
97.8p B share NAV plus cumulative dividends paid at 31 December 2020 (“Total Return”)
91.8p B share NAV at 31 December 2020
3.0p Interim dividends paid per B share during year

Financial Summary­­­

  Year to
31 December 2020
Ordinary share pool
               Year to

      31 December             2020

              B share
                    pool
Year to
31 December 2019
Ordinary share pool
Year to
31 December 2019
B share
 pool
Net assets (£’000s) 2,453 8,317 2,463 5,921
Return on ordinary activities after tax (£’000s) 1,045 252 (547) (168)
Earnings per share (p) 12.8 3.5 (6.7) (3.2)
Net asset value per share (p) 30.2 91.8 30.4 93.1
Dividends paid since inception (p) 65.25 6.00 52.25 3.0
Total return (NAV plus cumulative dividends paid) (p) 95.45 97.8 82.65 96.1

Financial Calendar

The Company’s financial calendar is as follows:

29 March 2021              Annual General Meeting (“AGM”) will be a closed meeting as a result of the Covid-19 (“C-19”) pandemic and will be held at 14:00 at 9 The Parks, Haydock, WA12 0JQ

July 2021                      Half-yearly results to 30 June 2021 published

February 2022              Annual results for the year to 31 December 2021 announced and Annual Report and Financial Statements published

For further information, please contact:

John Hustler, Seneca Growth Capital VCT Plc at john.hustler@btconnect.com

Richard Manley, Seneca Growth Capital VCT Plc at Richard.Manley@senecapartners.co.uk

Please note: page references and defined terms included in the extracts below refer to the page numbers and definitions in the Annual Report and Financial Statements.

Chairman’s Statement

I am pleased to present the 2020 Annual Report on behalf of the Board to shareholders.

Overview

As shareholders will recall, Seneca have assumed the investment and accounting responsibilities of the Company with effect from August 2018, following which £8.7 million has been raised for the B share pool to 31 December 2020. Since this represents the active investment portfolio, I am reporting on the B share portfolio first and then will give the results of the legacy Ordinary share portfolio.

I am pleased to say that, despite the unprecedented circumstances which we are all facing due to the C-19 global pandemic, I am able to report that both the B share and Ordinary share investment portfolios have stood up well to the challenges that they have faced. The Total Return (NAV per share plus cumulative dividends per share) for each share class increased during the year with the B share increasing by 1.8% to 97.8p and the Ordinary share increasing by 15.5% to 95.5p.

I am also pleased to be able to report that Seneca continued the development of the B share pool during the year both in terms of fundraising and investment activity. In October 2020, the Company launched its third offer for B shares and allotted an additional £1.5 million of shares in December 2020 taking to £8.7 million the total raised by the B share pool from launch in May 2018 to 31 December 2020. I would like to welcome all new shareholders and thank both existing and new shareholders for their support. The share offer will remain open until 28 May 2021 unless it reaches the target of £10 million with an over-allotment facility of £10 million before then.

The Company made six new B share pool investments in the year in addition to achieving one full exit and one partial exit and as a result the Company’s B share pool closed the year with ten investments, an increase of five on the prior year.

There were two full, and one partial disposal from the Ordinary share pool. The Ordinary share pool now has just seven investments remaining with AIM quoted Scancell Holdings Plc (“Scancell”) (which encouragingly secured £48 million of new investment in the year) accounting for 66% of the Ordinary share pool’s NAV at the year end. Recent press coverage regarding Scancell’s involvement in a potential C-19 vaccine has led to a significant rise in its share price, which stood at 24.5p at 19 February 2021 compared to our year end value of 13.5p. Further details and an updated unaudited NAV per Ordinary share and B share are included below.

With 54% of the B share pool’s NAV as at 31 December 2020 represented by cash and more than 20% of the Ordinary share pool’s NAV, the Company has ended the year well placed to face the challenges and opportunities presented by the ongoing C-19 pandemic and to deliver on the key objectives of continuing to build an attractive portfolio of growth capital investments in the Company’s B share pool whilst also continuing to realise investments in the Ordinary share pool when the opportunity arises.

I have set out below the progress made by each of the Company’s share classes during the year.

B Share Pool

B Shares - Results

The key items to impact the NAV of the B share pool during the year were as follows: 

  • Two dividends paid during the year totalling 3.0p per B share.
  • The full realisation of one B share pool AIM quoted investment generating a 2.1x return.
  • The partial exit of one B share pool AIM quoted investment generating a 1.6x return.
  • An increase in the valuation of two of the B share pool’s remaining three AIM quoted holdings.
  • A reduction in fair value of one of the B share pool’s seven unquoted company investments as a result of the impact of C-19.
  • The Company’s running costs.

                   
The net result of the above was an overall increase in the Total Return per B share to 97.8p as at 31 December 2020 (2019: 96.1p), consisting of a modest reduction in the NAV per B share to 91.8p as at 31 December 2020 (2019: 93.1p), a positive capital return of 5.7p per B share (2019: negative 0.7p) and a negative revenue return of 2.2p per B share (2019: negative 2.5p).  

Whilst the negative revenue return of 2.2p per B share is principally a result of the impact of the Company’s running costs on the B share pool, shareholders will recall that the Company’s running expenses are capped at 3% of the B share NAV until July 2021 (thereafter the total running costs will continue to be capped at 3% with general expenses being allocated to the Ordinary share pool and the B share pool pro-rata to their respective NAVs). As a result, Seneca reduced their annual management fee for 2020 from £127k to £41k to ensure the Company’s annual running expenses stayed within this 3% limit.

The positive capital return of 5.7p per B share noted above was principally due to increases in the share prices of the B share pool’s AIM quoted investments during the year and some harvesting of profit via partial sales of these AIM quoted investments offset by a reduction in the carrying value of one of the B share pool’s unquoted company investments. Full details are disclosed in the Investment Manager’s Report on pages 14 to 27.

B Shares - Investment Portfolio Review

As at 31 December 2020, the B share portfolio comprised ten companies, three of which are quoted on AIM, at a total net investment cost of £3,794k. As at 31 December 2020 this portfolio was valued at £3,982k.

In January 2021, the Company sold 1,750,000 shares in SkinBioTherapeutics Plc (“SkinBio”) which represented 37% of the original holding of 4,677,107 shares, reducing the remaining holding to 2,752,107 shares. These were sold at a net average price of 35.5p per share providing a return in the region of 2.2x on original cost.

B Shares – Update and Outlook

Taking into account further proceeds realised since 31 December 2020 as detailed above and in note 17 on page 97 and an overall increase in AIM quoted investment bid prices, the Company is pleased to announce an updated unaudited NAV per B share of 99.4p per B share at 19 February 2021, an increase of 7.6p per B share from the audited NAV of 91.8p per B share as at 31 December 2020 and an overall increase in the Total Return per B share to 105.4p as at 19 February 2021.

Shareholders will be pleased to know the Board declared an interim B share dividend of 1.5p per B share on 18 February 2021 to be paid on 14 May 2021 to shareholders on the B share register on 30 April 2021, with an ex-dividend date of 29 April 2021.

Seneca continue to work closely with the investee companies in the B share portfolio with the aim of ensuring that the potential impact of C-19 is mitigated and that each investee company has sufficient funds to support their working capital requirements until normal trading and economic conditions return. Seneca remain confident that the portfolio retains its potential to provide attractive returns for B shareholders over the medium term.

 

The Board is pleased with the progress that Seneca have made since their appointment as Investment Manager in 2018, in terms of funds raised, new investments made and relationships with brokers offering new quoted securities and now, exits achieved.

Seneca expect to increase the funds raised under the current B share Offer and add new growth capital investments to the B share portfolio during the course of 2021 from, inter alia, the investments they currently have in the later stages of due diligence.

 

Ordinary Share Pool

Ordinary Shares - Results

Whilst the NAV per Ordinary share decreased by 0.2p from 30.4p to 30.2p during the year, this was after the payment of dividends per Ordinary share totalling 13.0p. A better understanding of the underlying performance of the Company’s Ordinary share portfolio during the year is therefore provided by considering the NAV movement per Ordinary share during the year before dividends which shows an increase of some 12.8p (a 42% increase compared to 31 December 2019).     

This increase was principally driven by the increase in value of the Ordinary share portfolio’s two AIM quoted investments during the year. The quoted bid price of Scancell shares increased from 7.0p to 13.5p from the start of the financial year to the financial year end. During this period, it was decided to harvest a modest portion of our shareholding and we now hold 12 million shares. Omega benefited from its involvement in a partnership to develop a C-19 antibody test and the share price rose significantly; the Board, therefore, decided it was appropriate to take advantage of this and we sold our entire holding for £987k, generating a profit over original cost of £659k and over our holding value at 31 December 2019 of £666k.
             

As a result of the realisations noted above, your Board were very pleased to be able to pay dividends totalling 13p per Ordinary share during the year with no material adverse impact on the Ordinary pool’s NAV. The Total Return in relation to the Ordinary shares is now 95.5p comprising cumulative distributions of 65.25p per Ordinary share and a residual NAV per Ordinary share of 30.2p as at 31 December 2020.

As previously reported, the Board remains focused on identifying exit opportunities for the remainder of the Ordinary share pool investment portfolio, and it was particularly pleasing to have been able to distribute 13p per Ordinary share to shareholders this year with no material adverse impact on the Ordinary share pool’s NAV. Realisations in the last three years have enabled the payment of a total of 41p per Ordinary share in dividends to Ordinary shareholders, representing 64.3% of the NAV per Ordinary share as at 31 December 2017 and we still retain net assets of 30.2p per Ordinary share as at 31 December 2020. Notwithstanding this success, we remain confident that, overall, there remains the opportunity to realise further value for Ordinary shareholders in due course (particularly in relation to our Scancell holding): indeed as noted below, earlier this month we realised a further portion of our Scancell holding. For the time being, we do not currently consider it appropriate to liquidate any further Scancell shares and do not see any other immediate opportunities for realisations, but we continue to monitor the situation closely.

Ordinary Shares - Investment Portfolio

The remaining Ordinary share portfolio now comprises one AIM quoted holding, Scancell, as referred to above, which has a carrying value of £1,620k as at 31 December 2020, and six unquoted holdings – the carrying value of three of which have been reduced to zero with the combined carrying value of the other three being £521k as at 31 December 2020.

Shareholders will note therefore that Scancell represented more than 75% of the value of the Ordinary share portfolio as at 31 December 2020 and as a result the NAV per Ordinary share now fluctuates largely in line with the movement in the Scancell share price. Whilst the Scancell share price showed volatility during 2020, it is not our policy to update the market following each of these fluctuations unless there are considered to be abnormal events (e.g. sale of a significant holding – see below). Your Board therefore recommends that shareholders or prospective shareholders keep the Scancell share price under review and consider its impact on the Ordinary share NAV per share before taking any action in relation to an existing or prospective holding in the Company’s Ordinary shares. 

Further details in relation to the Ordinary share pool’s investment portfolio are included in the Investment Manager’s Report on pages 28 to 35.

Ordinary Shares – Update and Outlook

As referred to above, and following recent press coverage, the share price of Scancell has risen significantly from 13.5p at 31 December 2020 and was 24.5p at 19 February 2021. We are pleased that the market is recognising the continuing developments at Scancell and have taken the opportunity to realise a further modest part of our holding by selling 1 million shares at 21.7p per Scancell share. Our current holding is 11 million shares and we continue to believe that there is further upside in this holding.

This increase in the share price has given rise to a significant rise in the NAV per Ordinary share. Based on the NAV at 31 December 2020, adjusted solely for the uplift in valuation of our Scancell shares , the Ordinary share unaudited NAV per share was 44.0p at 19 February 2021.

The Ordinary share pool retained a cash balance of £527k as at 31 December 2020 in order to make follow-on investments into existing Ordinary share portfolio companies where the Board believes this will protect the Ordinary share pool’s existing investment and/or improve the overall prospects of a timely exit from the investee company. This has been increased to £744k following the recent sale of Scancell shares. Despite several of the Ordinary share pool portfolio companies seeking further funds during the year, we did not consider the terms attractive nor likely to improve the overall prospects for a timely realisation from the investee company and therefore no further Ordinary share pool investments were made.

Ordinary shareholders will recall that, following the appointment of Seneca as Investment Manager in August 2018, the Ordinary share pool incurs no running costs until July 2021.

Fund Raising

During the year the Company has allotted 2,701,500 B shares raising gross proceeds of £2,403k in the process. The current B share Offer will remain open until May 2021.

Annual General Meeting

The Company’s AGM will be held as a closed meeting at 14.00 on Monday, 29 March 2021 at the Company’s registered address 9 The Parks, Haydock, WA12 0JQ in accordance with the provisions of the Corporate Insolvency and Governance Act 2020. In light of the unprecedented restrictions on movement and gatherings due to the C-19 pandemic, shareholders will not be permitted to attend this year’s AGM and the meeting will take place with either two Directors who hold shares in the Company or one Director and an investment manager from Seneca Partners, who is also a shareholder, present only, to constitute the minimum quorum for the AGM to take place under the Company's articles of association and company law requirements. Shareholders should note that only the formal business set out in the Notice of AGM will be considered at the AGM.

Although shareholders will not be permitted to attend the AGM this year there will be a shareholder update presentation by the Investment Manager and a question and answer (“Q&A”) session at 10:00 on 8 March 2021, further details of which are included below and on https://senecavct.co.uk/march-2021-shareholder-presentation/.

Shareholders wishing to vote on any of the matters of business are urged to do so through completion of a proxy form appointing the Chairman of the AGM, which can be submitted to the Company’s Registrar. Proxy forms should be completed and returned in accordance with the instructions thereon and the latest time for the receipt of proxy forms is 14.00 on Saturday, 27 March 2021. Proxy votes can be also be submitted by CREST.

All resolutions will be decided by a poll and therefore it is essential that shareholders wishing to vote submit their proxy forms by 14.00 on Saturday, 27 March 2021.

Shareholders will have the opportunity to ask questions prior to submitting their proxy votes at the shareholder update presentation on 8 March 2021 as detailed below.

The Board has reviewed my performance and has asked me to continue as Chairman. A resolution for my re-election is included in the AGM Notice. Resolutions for the re-election of Alex Clarkson, Richard Manley and Richard Roth are also included in the AGM Notice.

The Notice of the AGM includes resolutions empowering the Directors to issue further B shares following the date of the AGM, which will primarily be used for the issue of B shares under a further Offer which we intend to launch for the 2021/2022 tax year. This requires authorisation for the Directors to be able to allot up to a further 35,000,000 B shares. Including these resolutions in the AGM business will avoid the Company having to produce and send out a separate circular to convene a separate general meeting.

The Notice of the AGM also includes a resolution to adopt amended Articles of Association which are substantially in the same form as the Company’s current Articles of Association but will allow, inter alia, the holding of partially virtual AGMs and to increase the total remuneration of the Directors to allow for the recruitment of a new non-executive Director. Further details of the differences between the two sets of Articles are set out in the Directors’ Report on pages 48 to 49.

A summary of the resolutions to be proposed by the Company at the AGM is included on pages 48 to 49.

Shareholder Update Presentation

Due to government restrictions impacting shareholders’ ability to attend the 2021 AGM as a result of the C-19 pandemic, a virtual shareholder update presentation will take place at 10:00 on Monday, 8 March 2021. Shareholders can register to attend the presentation by visiting:

      ·https://zoom.us/webinar/register/WN_UyGALLGCQCusM0gYuvud0A.

Further details about the shareholder event can be found on https://senecavct.co.uk/march-2021-shareholder-presentation/.

A Q&A session will take place where shareholders will have the opportunity to submit questions directly which we will seek to answer during the presentation. Questions can be submitted by emailing them to enquiries@senecavct.co.uk. Both the questions and answers will be published on the Company’s website following the presentation.

VCT Qualifying Status

Philip Hare & Associates LLP provides the Board with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs; they have confirmed that the Company remains within all the appropriate VCT qualifying regulations as at 31 December 2020. In respect of the 80% Qualifying Holdings test, as at the end of December 2020 the percentage is 100% by virtue of a disregard of disposal proceeds, of which there have been £1.1m of relevant share sales (exit proceeds that occurred in the prevailing 12-month period are deducted from the total investments balance). Note, these exit proceeds are only deducted to the point that the test reaches 100% but without these the Company was still well above the 80% qualifying requirement. As at 31 December 2020 39% of funds raised in the year to 31 December 2019 had been invested in qualifying investments for the 30% minimum requirement.

 

Fund Administration

Our administration is conducted by Seneca at the Company’s registered address. Neville Registrars Limited (“Neville”) continue to maintain the shareholder register. All information in respect of both share classes including Annual Reports and notices of meetings can be found on our website www.senecavct.co.uk. We would remind shareholders who have not opted for electronic communications that this is more efficient and ecologically friendly than receiving paper copies by post and therefore encourage you to contact Neville, whose details are on page 101, to advise them of your wish to switch to electronic communication.

Auditor

UHY Hacker Young LLP have audited the Company’s annual results for the year ending 31 December 2020, and shareholders will be asked to reappoint them at the AGM for the audit of the accounts for the year ending 31 December 2021.

Future Prospects

We are pleased that Seneca have continued to develop the portfolio of B share pool investee companies during the year. The B share portfolio includes a mix of both unquoted and AIM quoted investments and whilst progress of these investments to date has been generally positive, the Board and Seneca remain acutely aware of the need to continue to work at close quarters with all B share portfolio companies as they navigate the challenges ahead resulting from the C-19 pandemic.

We also note that Seneca expect to see an increase in the number of businesses seeking investment to support their growth plans over the next 12 months as a result of the C-19 pandemic. With over £4.5 million of cash on the B share pool balance sheet at 31 December 2020. Seneca believe they are very well placed to continue to support the existing B share investment portfolio as well as adding attractive new growth capital investments to the B share portfolio from the strong pipeline of opportunities presented to them. We therefore look forward to the continued development of the B share portfolio in due course.

Your Board continues to view the future of our Company with confidence.

John Hustler
Chairman
22 February 2021

 

Investment Manager’s Report

We are pleased to set out in this section further details in relation to the development of both the B and Ordinary share pools and their respective investee companies during 2020.

The B Share Pool

Fundraising

Our second B share offer was concluded in July 2020, bringing total funds raised to £7.2 million and our fund-raising efforts have since continued under our third B share Offer that was launched in October 2020, with £1.5 million being raised under this third Offer as at 31 December 2020. We were encouraged by the funds raised in the two months immediately following launch and remain focused on increasing the size of the B share pool, which will in turn allow us to increase the number and diversity of new investments that we make.

Performance and Dividends

Despite the unprecedented economic climate and general turmoil of financial markets occasioned by the C-19 pandemic, we are pleased with the development of the B share portfolio, with six additional investments being made in the year. We are also pleased to report an increase in the NAV Total Return per B share, from 96.1p at 31 December 2019 to 97.8p as at 31 December 2020.

This increase in NAV Total Return per B share was the result of a slight reduction in the B share NAV as at 31 December 2020 (which fell to 91.8p per B share (2019: 93.1p)) which was more than explained by the payment of two B share dividends totalling 3.0p during the year.

These two B share dividends paid during the year were in line with the Company’s ambition to continue to pay dividends on the B shares and it should be noted that the Company has sufficient distributable reserves to enable the continued declaration of B share dividends over the medium term subject to Board approval, the B share pool investment pipeline and liquidity levels.

AIM Quoted Investments

With the AIM market demonstrating a heightened level of volatility during the year as a result of the impact of C-19, we took the opportunity to realise just over half of the B share pool’s shareholding in OptiBiotix plc (“OptiBiotix”) (an investment made during the year), selling 400,000 shares and realising a gain of £92k on the disposal (1.6x cash return in just 2 months following the original investment). We also sold our full holding in Genedrive (another investment made in the year) which is the B share pool’s first full exit and generated a profit of £136k versus original cost (2.1x cash return).

We were also encouraged that the during the year we saw an increase in the bid price of the two largest B share pool AIM quoted investments: the SkinBio share price increased to 22.0p as at 31 December 2020 (a 57% increase from 14p as at 31 December 2019) and the OptiBiotix share price increased to 57.0p as at 31 December 2020 (a 42.5% increase from the cost price of 40p per share).

Co-investing With Seneca EIS Funds

More generally we continue to develop Seneca’s position in the market as an active growth capital investor and as at 31 December 2020, we have raised and deployed c.£100 million of EIS and VCT investment funds into over 50 SME companies, through over 100 funding rounds, since we undertook our first EIS investment in 2012. This includes £8.7 million raised to date by the B share pool.

The ten investments in the B share portfolio had a value of £3,982k as at 31 December 2020 and are co-investments with EIS funds also managed by Seneca. We believe that the opportunity for the Company’s B share pool to co-invest with EIS funds that are also managed by Seneca provides the B share pool with a number of advantages including being able to participate in a higher number of investments, of a larger scale, into more established businesses than would be possible for the B share pool on a standalone basis.
    
Further, as a result of our position in the UK market as an active growth capital investor we maintain a strong pipeline of investment opportunities, particularly in the North of England, with a focus on well managed businesses with strong leadership teams that can demonstrate established and proven concepts in addition to growth potential. We aim to invest in both unquoted and AIM quoted companies and are pleased to have completed three additional AIM quoted investments in the year.

Investee Company Updates

We are very happy with the development of the B share investment portfolio. As noted above, we are delighted to have been able to include some AIM quoted investments in these early investments and are also very happy that by 31 December 2020 we had already been able to exit some of these at a profit so early in the development of those businesses (1 full exit and 2 partial exits). These early profits have supported the performance of the B share pool NAV at the same time as we continue to develop the unquoted company investment portfolio.

We are excited about the potential that lies with the B share investment portfolio and have included updates in relation to all of the B share pool investee companies later in this Investment Manager’s Report but wanted to highlight in particular the progress being made by B share pool investee companies SilkFred Limited (“SilkFred”) and SkinBio below and also comment on the reduction in fair value introduced against the carrying value of Qudini.

SilkFred

SilkFred is an online marketplace which specialises in independent ladies’ fashion brands. The B share pool invested £500k in SilkFred in December 2018 and the business made strong progress throughout the first year of our investment building a strong reputation and brand in the “event driven” fashion space.

As you would expect however, this left the business exposed to the impact of the C-19 pandemic in 2020 which brought about a fall in sales levels as a result of the reduction in the number of celebrations and events which previously drove the company’s growth.

Notwithstanding this, SilkFred’s recovery from the UK’s first lockdown was swift and Gross Marketplace Value (total sales value sold through the SilkFred platform) during the summer months of 2020 actually exceeded that of 2019. The business traded well for the rest of the year, remaining profitable throughout, buoyed by the loyalty shown by the customer base. The management team continue to view their market position positively and are looking to the future with confidence, particularly in anticipation of the return of their core markets as the UK emerges from lockdown. We too, are excited about SilkFred’s future.   

SkinBio

SkinBio is an AIM quoted life science company focused on skin health and the B share pool invested £750k in February 2019 at 16p per share. The business made excellent progress during 2020 including raising c£4.45m of funds from new and existing investors, successfully accelerating the project timeline for its food supplement programme and gaining commercial interest for its MediBiotix and CleanBiotix programmes. The SkinBio share price closed on 31 December 2020 at 22p per share.

Having initially invested in SkinBio in February 2019, we sold 175,000 shares in early June 2019 at a profit of c1.5x original cost reducing the remaining holding to 4,502,107 shares. We did not sell any shares in 2020; however following the 31 December 2020 year end, the positive progress being made by SkinBio translated into further increases in the share price and we are pleased to report that we have taken the opportunity to take some profit from this investment. We sold 1,750,000 shares in January 2021 (37% of the B share pool’s original holding of 4,677,107 shares) reducing the remaining holding to 2,752,107 shares. These were sold at a net average price of 35.5p per share providing a return in the region of 2.2x on original cost.

The business is well funded, is targeting a valuable market with unmet cosmetic and clinical needs and we remain confident of SkinBio’s long-term prospects of success.

Qudini

Qudini is a UK based market leading provider of queue management software for enterprise brands. It generates the vast majority of its revenue from bricks and mortar retailers. Given the level of uncertainty caused in this core market by C-19, we took the prudent decision to reduce the carrying value of the B share pool’s investment in Qudini by 40% as at 30 June 2020. Whilst there has been some improvement in the trading performance of Qudini in H2 2020, some uncertainty remains over the future of its core bricks and mortar retail market. Therefore, we have maintained the 40% reduction in fair value and this investment was held at 60% of cost as at 31 December 2020.

Investments made after the Year End and outlook

Following the year end we also completed an additional unquoted company investment into Solascure Ltd (“Solascure”) for £500k. Solascure is an early stage wound care specialist which was originally spun out of (and continues to work alongside) world leading German biotech company BRAIN engaged in the development of a new-to-market wound care product. Solascure is also backed by strategic investor Eva Pharma and the business will commence their first clinical trial in 2021. Solascure’s Aurase product is a gel-based product that efficiently and gently cleans wounds, making the healing process much more straightforward.

We look forward to continuing to increase the funds raised for the B share pool under the current Offer and with several new investment opportunities in the later stages of due diligence, we expect to add to the portfolio of B share investee companies in the coming months.

 

Investment Portfolio – B shares

Unquoted Investments Equity
held
%
Investment at cost £'000 Unrealised profit/(loss) £'000 Carrying
value at
31 December 2020
£'000
Movement
in the year to
31 December 2020
 £'000
Fabacus Holdings Limited 2.0 500 63 563 -
Silkfred Limited <1.0 500 - 500 -
Old St Labs Limited 3.8 500 - 500 -                        
Ten80 Ltd 7.5 400 - 400 -
Qudini Limited 2.4 500 (200) 300 (200)
Bright Network Ltd 1.7 234 - 234 -
ADC Biotechnology Ltd <1.0 150 - 150 -
Total unquoted investments   2,784 (137) 2,647 (200)
           
Quoted Investments Shares held Investment at cost £'000 Unrealised profit/(loss) £'000 Carrying
value at
31 December 2020 £'000
Movement
 in the year to
31 December 2020
£'000
SkinBioTherapeutics Plc 4,502,107 720 270 990 360
OptiBiotix plc 350,000 140 60 200 60
Abingdon Health plc 156,250 150 (5) 145 (5)
Total quoted investments   1,010 325 1,335 415
Total investments   3,794 188 3,982 215

           
                                              

Exits for the period Investment Date No. of Shares sold Investment at cost £'000 Sale Proceeds £’000 Realised profit/(loss) £'000 Exit Multiple
OptiBiotix Health Plc* April 2020 400,000 160 252 92 1.6
Genedrive Plc May 2020 157,437 126 262 136 2.1
Total     286 514 228 1.8

*Partial exit

B Share Pool – Investment Portfolio – Top Six Unquoted Investments by value as at 31 December 2020

1.         Fabacus Holdings Limited

Initial investment date: February 2019 Fabacus is an independent software company that has developed a complete product lifecycle solution: Xelacore, aimed at bringing transparency to supply chain networks, with an initial focus on resolving the interaction and information flow between global licensors and their licensees.

 

Currently, there is a fundamentally flawed data capture process between licensors and licensees; and a disconnection from the framework of retail standards that have underpinned and continue to enable the retail value chain. This has resulted in an inability to correctly address known shortcomings in respect to data management and hinder the needed digital transformation of licensors in the digitally evolving retail landscape.

 

Fabacus’s solution, Xelacore, is a modular, Software as a Service solution with an intuitive interface and proprietary data aggregation and management engine that allows all stakeholders to operate on a single unified and collaborative platform. It bridges the gaps in an inefficient process within the current retail ecosystem by creating authenticated, enriched universal records that unlock opportunities, reduce risk and drive performance for both licensors and licensees.

 

Progress made by the company in 2020 includes:

 

·Continuing to make excellent progress with a number of customers, most notably through its promising relationship with Amazon.

 

·Onboarding fee-paying licensees to their market leading data platform and starting to generate revenue from their relationship with IMG (#1 global licensing agency).

 

·Successfully raising c.£1m to fund the working capital requirements of the company and to onboard the growing customer pipeline.

 

·Collaborating with Amazon to provide a version of the company’s technology which has the ability to identify and remove any counterfeit products from online marketplaces. In turn this has driven a significant increase in interest in and demand for Fabacus’ platform and ancillary services which has translated into increased commercial activity and revenue in recent months.

 
Cost: £500,000
Valuation: £563,000
Equity held: 2.0%
Last statutory accounts: 31 August 2019
Turnover: Not disclosed
Loss before tax: Not disclosed
Net assets: £7.6 million
Valuation method: Price of last fundraise

2.       SilkFred Limited

Initial investment date: December 2018 SilkFred is an online marketplace for independent ladies’ fashion brands. The business was founded in 2011 with the aim of creating an efficient marketplace for emerging fashion designers to bring products to market and establish their brand in the sector. The business now works with c.600 independent brands, selling to over 500k customers.

 

SilkFred acts as a central marketing and sales platform for these brands, charging commission in exchange for these services, and as a result the business itself takes minimal inventory / working capital risk on new brands, lines or products.

 

The business model revolves around a market leading and scalable customer service platform, and as such SilkFred are continually investing in core infrastructure and constantly seeking innovative methods to enhance the customer experience.

 

Progress made by the company in 2020 includes:
  • Bouncing back extremely well from the impact of the first C-19 lockdown which saw the company’s primary market of event driven fashion being adversely impacted by the C-19 pandemic. Product mix has changed dramatically in the short term, meaning SilkFred is well positioned for future growth with a more diverse customer base and impacted less by seasonal trends.
     
  • Continued expansion of SilkFred’s international presence. It is clear that the international potential of the brand is a key driver of value in the business and it is therefore encouraging to see international sales growing by more than 60% in 2020.
     
  • Despite the C-19 impact being felt to some extent throughout 2020, SilkFred saw continued growth in its portfolio of brands, increasing to more than 900 and once again selling over 1m units for the year. The company also saw continued improvement in its key performance metrics with average order value, orders to repeat customers and return on marketing spend all increasing during the year.
Cost: £500,000
Valuation: £500,000
Equity held: <1%
Last statutory accounts: 31 December 2019
Turnover: £20 million
Loss before tax: £3.1 million
Net assets: £4.4 million
Valuation method: Cost and price of recent investment (reviewed for any fair value adjustment)

3.       Old St Labs Limited

Initial investment date: March 2019 Old St Labs is a provider of cloud based, supplier collaboration tools for large, blue chip customers, enabling them to manage key supplier relationships and strategic project work. The core product, Vizibl, seeks to make supplier collaboration much more straight forward, with key focus on compliance, savings / efficiency and driving growth across the business.

 

Vizibl is the only SaaS workspace that supports collaborative supplier relationships, bringing all points of contact together in one place, providing visibility across the company and eliminating duplication of efforts. Vizibl’s real-time reporting speeds up decision making, drawing on and sharing the expertise of the community in the process. The offering taps into a growing trend in supplier collaboration, having moved on from the initial focus on compliance, to an increased emphasis on savings / efficiency, and recent developments highlighting the benefits in terms of wider growth strategy for large customers.

 

Vizibl provides the infrastructure, governance and reporting capabilities to optimise present supplier performance and acts as a springboard for those collaborative supplier relationships. The product is CRM / ERP agnostic, working alongside all major software providers to ensure the collaboration software is insightful and informative.

 

Progress made by the company in 2020 includes:

  • Engaging with global leaders across a wide range of sectors with keeping annual recurring revenue consistent at just over £1m. In what was initially a slow period for the business with large corporate customers slowing down decision making and pausing project spend upon the onset of C-19, Old St Labs have worked closely with existing customers and have returned to growth in the second half of the year with multiple impressive customer wins.
     
  • Continuing to expand the Vizibl platform and enhancing its capabilities and usability. In the current year, in response to the global pandemic, the team have pushed more of a sustainability angle into the platform, adding features and enhancements to assist both new and existing customers with ensuring that their projects and organisations remain resilient.
     
  • Building on an already impressive customer base by onboarding Unilever and Sanofi. Not only do these types of customers improve the financial profile of the business, but they also further validate the proposition and serve to demonstrate the viability of the Vizibl platform across a wider range of sectors.
     
  • Securing a £2.5m funding from the UK Government-backed Future Fund, providing sufficient headroom to progress through to profitability.
 
Cost: £500,000
Valuation: £500,000
Equity held: 3.8%
Last statutory accounts: 31 March 2020
Turnover: Not disclosed
Loss before tax: Not disclosed
Net assets: £260,000
Valuation method: Cost and price of recent investment (reviewed for any fair value adjustment)

4.       Ten80 Group Limited

Initial investment date: March 2020 Based in Hammersmith, Ten80 Group Limited (“Ten80”) was established in early 2019. The company is a SAP focussed on-demand outcome-based delivery solution. SAP is best known for producing enterprise resource planning software which allows organisations to manage business operations across procurement, manufacturing, service, sales, finance, and HR.

 

Ten80’s aim is to connect every SAP customer with every SAP consultant globally, delivering outcome-based projects rather than time-driven costs through the contractor or freelancer marketplace.

 

The SAP global consultancy market is estimated to be worth in excess of £300bn.

 

Progress since our investment:
  • Securing its first paying customers, providing further validation that the proposition is of value to large corporations with significant IT project spend. Whilst the global pandemic has slowed down large enterprise decision making, it has also fast-tracked the shift to remote working and flexible resource, something which plays into the hands of the Ten80 proposition.
  • Successfully adding the required skills to the team scaling it from 5 people at the time of investment to 19 at present. This has added valuable resource across the business, with key focus on the development team, sales personnel and customer success roles.
  • Further, in January 2021 the business secured a £1m funding round under the UK Government-backed Future Fund. This will in turn provide the business with additional cash headroom as they focus on converting an exciting customer pipeline and expanding the customer base, as well as ramping up usage of the Ten80 platform within existing customers.
Cost: £400,000
Valuation: £400,000
Equity held: 7.5%
Last statutory accounts: 31 December 2019
Turnover: Not disclosed
Loss before tax: Not disclosed
Net assets: £30,000
Valuation method: At cost (reviewed for any fair value adjustment)

5.       Qudini Limited

Initial investment date: April 2019 Founded in 2012, Qudini is a B2B software company that provides customer experience SaaS solutions to organisations in retail, hospitality, the public sector and healthcare.

 

Qudini provides a software solution for appointment bookings, queue management, event management and task management – enabling businesses to improve shop floor operations by managing staff activity, breaks and performance, and by assigning tasks at store or head office level.

 

Qudini is aiming to revolutionise digital queue and appointment management. It achieves this through deployment of its data-centric, cloud-based (Amazon Web Services), cross-platform service, which improves a business’ ability to manage the flow of customers awaiting service, using algorithms to provide accurate, live data, such as estimated wait times. Through integration with various software platforms and compatible with wide variety of hardware, Qudini enables detailed analytics focused on customer trends, and provides a unique insight into areas such as customer footfall, peak demand times, and wait times.

 

2020 update:

 

  • Given that the company's main source of income is through the provision of queuing technology for bricks and mortar retailers, the effect of C-19 during the first UK lockdown was expected to be significant. As such, the company took the opportunity to restructure its cost base and reduce FTE’s by c.50% to 19 and put a stop to any unnecessary spend in order to preserve cash. Consequently, we applied a 40% reduction in fair value (in March 2020) against the carrying value of the B share pool’s investment in Qudini to reflect this uncertainty and have maintained this at 31 December 2020.
     
  • Although a level of uncertainty remains given the company’s retail market exposure, the outlook has improved somewhat given the increasing demand for queuing/customer management technologies as retailers look to re-open and trade safely.
     
  • Whilst the environment for new business during the first lockdown had not been ideal, Qudini now has a short window of opportunity to continue to gain market share in H1 2021.
     
  • The demand noted above has driven an increase in Annual Recurring Revenue (“ARR”) as at December 2020 to c.£2.5m (December 2019: £1.8m); however,  it  will be a key focus of the management team over the next 12 months to upsell Qudini’s other services in order to help retain the company’s new customers post-covid and transition those new customers on to longer term contracts.
 
Cost: £500,000
Valuation: £300,000
Equity held: 2.4%
Last statutory accounts: 31 December 2019
Turnover: Not disclosed
Loss before tax: Not disclosed
Net assets: £3.1 million
Valuation method: At cost, less a 40% reduction in fair value to reflect potential impact of C-19 on the company’s core UK markets

6.     Bright Network (UK) Limited

Initial investment date: March 2020 Bright Network (UK) Limited (“Bright”) is a Human Resources technology platform designed to enable leading employers to reach, identify and recruit high quality graduates and young professionals. At the time of our investment, the platform supported a network of over 255,000 high calibre candidates and has 300+ leading employers within its customer base, including multiple high-quality blue-chip clients. These employers utilise Bright’s services to fill annual intern and graduate recruitment scheme places, as well as any bespoke recruitment requirements.

 

Data analytics and machine learning is utilised to support and continuously improve identification of the best-suited talent to each employer. Bright provides a free service to undergraduates, personalising careers advice and job matches to support their career journey. The database is therefore a growing data-rich asset, processing 30 million pieces of data on a new generation of young professionals.

 

In March 2020, the VCT invested £234,000, as part of a larger £3.5m fundraise to allow the company to increase the size of its digital and talent solutions’ sales and marketing resources, together with improvements to the technical platform to drive additional service revenues.

 

Progress since our investment:

 

·Limiting the potential impact of C-19 by cutting its cost base and through the launch of online internships which were extremely well received over the summer. This has resulted in an increase in registered users to over 350,000.

 

·Trading ahead of expectations. Due to the pandemic the sales season (which typically ends at the end of August) has been extended, and the company continues to be on track to surpass the £2.5M revenue target for the financial year ending 31 March 2021 (FY21).
             
·Delivering strong top line performance coupled with tight cost control has resulted in the company outperforming FY21 planned gross profit and EBITDA.
             

·Delivering an improved cash position which is £900k ahead of budget. This outperformance alongside business agility puts the company in a strong position as the UK recovers from the C-19 pandemic. However, whilst more macro-economic uncertainty remains, this investment will continue to be held at cost.

 
Cost: £234,000
Valuation: £234,000
Equity held: 1.7%
Last statutory accounts: 31 March 2020
Turnover: Not disclosed
Loss before tax: Not disclosed
Net assets: £4.9 million
Valuation method: At cost (reviewed for any fair value adjustment)

B Share Pool - Investment Portfolio – AIM Quoted Investments as at 31 December 2020

1.       SkinBioTherapeutics Plc

Initial investment date: February 2019 SkinBioTherapeutics is a life science company focused on skin health. The company's proprietary platform technology, SkinBiotixTM, is based upon discoveries made by Dr. Cath O'Neill and Professor Andrew McBain.

 

SkinBioTherapeutics' platform applies research discoveries made on the activities of lysates derived from probiotic bacteria when applied to the skin. The company has shown that the SkinBiotixTM platform can improve the barrier effect of skin models, protect skin models from infection and repair skin models. Proof of principle studies have shown that the SkinBiotixTM platform has beneficial attributes applicable to each of these areas.

 

The aim of the company is to develop its SkinBiotixTM technology into commercially successful products supported by a strong scientific evidence base. SkinBioTherapeutics’ commercial strategy is to engage health and wellbeing and/or pharmaceutical companies in early dialogue to build up relationships and maintain communication on technical progress until one or more commercial deals can be secured.

 

Progress made by the company in 2020 includes:

 

  • Announcing a 3 year agreement with Winclove to focus on the development of a blend of probiotic bacteria which have been identified as having a positive impact on the psoriasis disease pathway. Under the agreement, SkinBio will identify the specific probiotic strains which Winclove will formulate and manufacture into a consumable product to be branded AxisBiotix. Later in the year the company announced that Winclove had been able to successfully combine and formulate the blend as a probiotic food supplement, to be known as AxisBiotix Ps, several months ahead of schedule. A study is due to commence in February 2021.
     
  • Announcing in July 2020 that the SkinBiotix cosmetic programme had achieved a number of key scientific milestones with its partner Croda. Croda has successfully replicated the lysate manufacturing process and achieved the same performance from the SkinBiotixTM technology as established by the company. Croda is now working to validate scale up of the manufacturing process at different volume levels. The project is progressing in line with the original plan and has not been adversely impacted by C-19.
     
  • Continued progress with live opportunities across its MediBiotix, CleanBiotix and PharmaBiotix divisions, including the development of eczema treatments as well as additional opportunities designed to reduce hospital acquired infections.
     
  • Completion of a £4.5m funding round in October 2020, providing the business with sufficient cash headroom to progress with its exciting pipeline of commercial opportunities, as well as continuing with the development of a number of early stage, pre-clinical opportunities.
             

             
Cost (of the portion of the original investment still held as at 31 December 2020): £720,000
Valuation: £990,000
Equity held: 2.9%

Last statutory accounts: 30 June 2020
Turnover: £nil
Loss before tax: £1.6 million
Net assets: £2.5 million
Valuation method: Bid price of 22p per share

2.       OptiBiotix Health Plc

Initial investment date: April 2020 OptiBiotix Health PLC is a Life Sciences business operating in one of the most progressive areas of biotechnological research, developing technologies that modulate the human microbiome – the collective genome of the microbes in the body. The business identifies and develops microbial strains, compounds and formulations for use in food ingredients, supplements and active compounds that can impact on human physiology, deriving potential health benefits.

 

With an established pipeline of microbiome modulators, the OptiBiotix team works today in the prevention and management of chronic lifestyle diseases including obesity, hypercholesterolemia and lipid profiles, and diabetes.

 

To date, the company has signed in excess of 50 commercial deals globally to supply or licence its suite of products/supplements to manufacturers and retailers and has launched a number of its own brand products. The VCT invested £300,000 into a £1m fundraise in April 2020, with funds being used to launch its award-winning products across Asia and the US, through partners who have an international reputation and significant retail network, as well as further expanding the portfolio of products. Between investment and 31 December 2020 53% of the shares originally acquired have been realised at a 60% profit.

 

Progress since our investment:

 

·Announcing positive half year results for the 6 month period to 30 June 2020 including:
o    H1 revenue growth of £745k.
o    a 5x increase in revenues from H1 2019.
o    a 15.5% reduction in other administration costs.
a 50% reduction in loss compared to the same period in the prior year.

 

The company is now at a commercial turning point with the business model now proven through growing sales from proven products, established partners in multiple international territories, and reduced administration and R&D costs. We believe the company is therefore well placed to attack the various attractive markets in which they are gaining traction.

 

Optibiotix’s first generation products, SlimBiomeTM, and LPLDLTM, are now established scientifically, clinically, and commercially with products being sold in over 120 countries around the world and a growing brand presence.

 

As sales and profitability in first generation products continues to improve, there is an expectation this should enhance the company’s reach into new application areas and territories, and commercialise next generation products – all of which have the ability to further enhance the scale and growth prospects of the company.

 
Cost (of the portion of the original investment still held as at 31 December 2020): £140,000
Valuation: £200,000
Equity held: <1.0%

Last statutory accounts: 31 December 2019
Turnover: £745,000
Loss before tax: £2.2  million
Net assets: £5.2 million
Valuation method: Bid price of 57p per share

3.       Abingdon Health plc

Initial investment date: December 2020 Abingdon Health is a specialist outsourced Contract Development and Manufacturing Organisation (CDMO) providing a full suite of services to the lateral flow diagnostic market. It is the lead member of the UK’s Rapid Test Consortium (UK-RTC) for a point-of-need C-19 antibody test (AbC-19) and is investing in automated manufacturing to significantly increase capacity and attract new customers across a range of sectors.

 

As the lead member of UK-RTC, the company co-ordinated a consortium of four companies (including former Ordinary share portfolio company Omega) and, in under four months, successfully developed and validated a rapid lateral flow test (“AbC-19”) for detecting SARS-CoV-2 IgG antibodies. The UK Government has ordered the first 1m devices and provided funding for the components for a further 9m to be delivered in the coming months. There is a mechanism by which Abingdon Health can sell any excess supply externally and it has already had significant interest from a number of third parties. It is also working with a number of partners on rapid antigen tests, leveraging its key lateral flow competencies and offering broad exposure in C-19 diagnostics. The pandemic has driven a material step change in demand for lateral flow tests generally and has catalysed a number of other C-19 and non-C-19 contract development and manufacturing opportunities.

 

Abingdon Health has established relationships with blue chip partners and a strong pipeline of potential new business, including a number of signed and qualified opportunities. It also has an innovative and proprietary mHealth solution, AppDx, a customisable smartphone reader that is capable of quantitative analysis of lateral flow tests and the transfer of real-time data.

 

The investment was completed just before the end of the financial year, so there is no further progress to report from 2020.

 
Cost: £150,000
Valuation: £145,000
Equity held: <1.0%

Last statutory accounts: 30 June 2019
Turnover: £2.3 million
Loss before tax: £1.5  million
Net assets: £6.2 million
Valuation method: Bid price of 93p per share

B Share Pool – Investment Portfolio – Post-balance sheet Investments as at 22 February 2021

1.       Solascure Ltd

Initial investment date: January 2021 Solascure is an early stage wound care specialist, originally spun out of and working alongside BRAIN (world leading German biotech company), to develop a new-to-market wound care product. In 2019, the company deconsolidated from BRAIN and brought in additional strategic investment from Eva Pharma (c.£2m) and is now set to commence clinical trials of its wound care product Aurase. Solscure’s Aurase is a gel-based product that efficiently and gently cleans wounds, making the healing process much more straightforward. Pre-clinical work has been extremely positive and the clinical trial planning process is now well progressed.

 

Chronic wounds are a growing global problem, and alternative methods of treatment for hard to heal wounds are extremely expensive, impractical and slow. Solascure’s proprietary technology utilises the key mechanism of maggot debridement without the cost or labour input of live maggots. In simple terms, it uses maggot elements to facilitate and promote the body’s own wound cleansing processes. Core benefits of the product are the clear practical elements, as well as the reduced time scale to full debridement without delaying wound healing.

 

SolasCure have an approved protocol for a clinical study in order to reach market authorisation, which is anticipated to commence in early 2021 (with phase 1 anticipated to conclude by the end of the year). Crucially, the product permits the use of the main maggot-derived wound debriding enzyme without the cost or labour input involved with the use of live maggots, but also augments and synergises the body’s own wound cleansing processes. The product is expected to demonstrate 3 key benefits: 1) Specific swift destabilisation of fibrin debris; 2) No irritation or damage to healthy tissue; 3) Reducing the time to full debridement without delaying wound healing.

 

In January 2021, the VCT invested £500,000, alongside £733,000 of Seneca EIS funds as part of a £2.9m fundraise to allow the company to progress and complete the full trial (Phase 1 and 2) by the end of 2022.

 
Cost: £500,000
Valuation: £500,000
Equity held: 2.8%
Last statutory accounts: 30 June 2019
Turnover: Not disclosed
Loss before tax: Not disclosed
Net assets: £ 6.7 million
Valuation method: At cost

The Ordinary Share Pool

Shareholders will recall that whilst Seneca is the Company’s Investment Manager, responsibility for the management of the Ordinary share pool investments continues to rest with those remaining members of the Board of Directors who were serving at the point of Seneca’s appointment on 23 August 2018, which now includes John Hustler and Richard Roth.

AIM Quoted Investments

The Ordinary share pool’s largest investment is AIM quoted Scancell and this represented 37% of the Ordinary share pool’s NAV as at 31 December 2019 when the Scancell share price was 7.0p. During the year, the Scancell share price almost doubled and ended the year at 13.5p. In view of this increasing share price, the Company took the opportunity to realise some profit and sold a small portion of our Scancell shares during the year (1,049,730 shares (8%) were sold from a holding at the start of the year of 13,049,730 shares) realising £127k and generating a profit versus original cost of £64k (a 2x return on the original investment) and a profit versus the 31 December 2019 carrying value of £54k. The Ordinary share pool’s remaining stake in Scancell of 12,000,000 shares increased by £780k during the year to stand at a value of £1,620k as at 31 December 2020.

The Ordinary share pool’s investment in AIM quoted Omega gained significant traction in the year following its involvement in a partnership to develop a C-19 antibody test. The share price rose substantially from its 31 December 2019 price when it was 14p and this allowed the Company to sell the Ordinary share pool’s entire holding of 2,293,868 Omega shares in the year for a total of £987k. This generated a profit versus original cost of £659k (a 3x return on the original investment) and similarly a profit of £666k versus its 31 December 2019 value.

Unquoted Investments

With regard to the Ordinary share pool’s unquoted investments, the carrying value of OR Productivity Limited (“ORP”) and Fuel 3D Technologies Limited (“Fuel 3D”) were both reduced as a result of fundraises by these companies in 2020. In the case of ORP, the dilutive impact of the funds raised are such that the Company  reduced the carrying value to £nil for the Ordinary share pool’s investment in ORP as at 31 December 2020 (31 December 2019 carrying value: £233k) and in the case of Fuel 3D the carrying value has been reduced to bring it in line with the price of their 2020 fundraise. Although the Ordinary share pool has maintained the value of Arecor Ltd at the price of the last fundraising in 2018, it continues to make excellent technical and commercial progress.

Performance and Dividends

As a result of the above AIM quoted investee company realisations, the Ordinary share pool was able to pay dividends totalling 13p per Ordinary share during the period.

The Total Return in relation to the Ordinary shares is now 95.5p comprising cumulative distributions of 65.25p per Ordinary share and a residual NAV per Ordinary share of 30.2p as at 31 December 2020.

As noted in the Chairman’s statement, the Company is focussed on realising assets in the Ordinary share pool at the appropriate time with the proceeds then being distributed to Ordinary shareholders as dividends – it is therefore noteworthy that in the 3 years to 31 December 2020 the Company has paid out dividends totalling 41p per Ordinary share (equivalent to 64.3% of the NAV per Ordinary share of 63.8p as at 31 December 2017) and the Ordinary share pool also retains NAV per Ordinary share of 30.2p as at 31 December 2020.

Investment Portfolio – Ordinary shares

Unquoted Investments Equity
held
%
Investment at cost £'000 Unrealised profit/(loss) £'000 Carrying value at
31 December 2020
£'000
Movement
in the year to
31 December 2020
£'000
Arecor Limited 1.1 142 63 205                          -
Fuel 3D Technologies Limited <1.0 299 (104) 195   (81)
Insense Limited 4.6 509 (388) 121 -
OR Productivity Limited 3.7 765 (765) - (232)
Microarray Limited 3.0 132 (132) - -
ImmunoBiology Limited 1.2 868 (868) - -
Total unquoted investments   2,715 (2,194) 521 (313)
           
Quoted Investments Shares held Investment at cost £'000 Unrealised profit/(loss) £'000 Carrying value at
31 December 2020 £'000
Movement
 in the year to
31 December 2020
£'000
Scancell plc 12,000,000 726 894 1,620 780
Total quoted investments   726 894 1,620 780
Total investments             3,441 (1,300) 2,141 467


Exits for the period Investment Date No. of Shares sold Investment at cost £'000 Sale Proceeds £’000 Realised profit/(loss) £'000 Exit Multiple
Scancell plc * December 2003 1,049,730 63 127 64 2.0
Omega Diagnostics plc August 2007 2,293,868 328 987 659 3.0
Exosect Limited ** January 2010 8,575 270 - (270) -
Total     661 1,114 453 1.7

*Partial exit
**Dissolved 24 January 2020

 

Ordinary Share Pool – Investment Portfolio – All Six Unquoted Investments by value as at 31 December 2020

1.       Arecor Limited

Initial investment date: January 2008 Arecor was a spin-out from Insense (a Seneca Growth Capital Ordinary share investee company – see below) to commercialise technology developed by Insense for enabling biologics to maintain their integrity without the need for refrigeration - this both reduces cost and also helps supply chain logistics in developing countries where temperature monitored cold storage facilities are in short supply.

 

Progress made by the company in 2020 includes:

 

  • Announcing in March 2020 that Arecor had extended its multi-product collaboration with a US-based clinical stage biotechnology company.
     
  • Announcing in June 2020 positive results of their phase 1 trial on AT247.
     
  • Expanding their partnership with Hikma announced 20 October 2020.
     
  • Commencing in December 2020 dosing patients in the AT278 clinical study (ultra-concentrated insulin, first in man study) following a £1.9m fund raise: this is a very significant milestone as they continue to build momentum with their differentiated portfolio of superior products.
     
  • Announcing in late December 2020 that Arecor’s partner, Inhibrx, exercised their option to license a novel formulation of the investigational clinical stage product, INH-101, developed by Arecor. This is the first license under a multi-product collaboration with Inhibrx and further validates the value of the ArestatTM technology platform in developing superior versions of existing therapeutic products.
 
Cost: £142,000
Valuation: £205,000
Equity held: 1.1%
Last statutory accounts: 31 December 2019
Turnover: £748,000
Loss before tax: £2.7 million
Net assets: £4.2 million
Valuation method: Price of last fundraise

2.       Fuel 3D Technologies Limited

Initial investment date: March 2010 In 2014 Fuel 3D was formed to acquire the computer 3D imaging IP of Seneca Growth Capital Ordinary share investee company, Eykona. The initial application for this IP targeted by Eykona was measuring the volume of chronic wounds; however this has since developed and the current application focus is on a) measuring tumours in animals used in drug development via a product called BioVolume and b) enabling the manufacture of products to fit a particular individual e.g. masks used to treat certain medical conditions.

BioVolume is Fuel 3D’s lead product and improves measurement accuracy, inter-operator consistency, animal welfare, cost efficiencies, compliance and the success of pre-clinical oncology research.

Progress made by the company in 2020 includes:

  • The development of BioVolume in conjunction with major pharmaceutical companies but have suffered C-19 related delays: trials with three of the majors are only now coming to an end and the fourth commenced in January 2021. The data to date looks promising and has recently enabled the signing of a contract to sell two units to a specialist research lab.
     
  • The continued development of the technology for FitsYou applications (e.g. sleep apnoea masks and eyewear) has taken longer than expected, partly due to working at the edge of capability of partners’ platforms. The app that has been designed for the world’s largest manufacturer of sleep apnoea masks (to allow them to scan customers’ faces in order to assess best fit) has recently been completed and a three month pilot will start early in the New Year, hopefully resulting in a commercial licensing agreement later in 2021. The same technology is also being used to develop tools targeted at the eyewear industry, developing apps to bring virtual try on and best fit to eyewear retailers and brands. Fuel 3d is exploring the launch of a B2C marketplace and the company has filed a patent application to cover the creation of a 3D model using depth data generated by mobile devices which it expects to form a fundamental part of its technology offering within FitsYou. 
     
  • The reduction in cash burn, which is now c.40% lower than this time last year and the raising of £3.8m (at a slightly reduced valuation) means that even in the absence of revenues, the company has sufficient runway to take it through to the end of 2021, although it may seek further investment to accelerate development and commercialisation of FitsYou.
     
  • The board of Fuel3D is also considering separating each business into separate units as the BioVolume and FitsYou businesses are likely to appeal to different buyer audiences.
 
Cost: £299,000
Valuation: £195,000
Equity held: < 1%
Last statutory accounts: 31 December 2019
Turnover: £521,000
Loss before tax: £4.3 million
Net assets: £5.4 million
Valuation method: Price of last fundraise

      3.       Insense Limited

Initial investment date: July 2003 Insense is an innovative, biotechnology company and was spun-out from Unilever’s R&D laboratory in 2001.

It has since had two successful spinouts, namely Arecor (see above) and Archimed, from which Microarray (see below) was also spun-out. Current Insense development activity is concentrated on dermatology products for both professional and consumer applications.

 

Progress made by the company in 2020 includes:

 

      ·Completing testing of the UV lamp that will be used in a first-in-man trial and continuing preparations for further formulation and stability testing. C-19 has affected  progress in 2020, slowing the speed of product and service delivery from Chinese and UK-based partners.

 

 
Cost: £509,000
Valuation: £121,000
Equity held: 4.6%
Last statutory accounts: 31 December 2019
Turnover: Not Disclosed
Loss before tax: Not Disclosed
Net liabilities: £51,000
Valuation method: Price of last fundraise

4.       OR Productivity Limited

Initial investment date: March 2011 At the end of 2011, Freehand 2010 (a Seneca Growth Capital Ordinary share investee) was acquired by OR Productivity plc (ORP) in exchange for ORP shares.

Freehand 2010 owns the intellectual property to technology incorporated in a product, FreeHand, for robotically controlling the laparoscope (part of the camera system) used in the growing sector that is keyhole surgery. The company sells the system outright and provides consumables although, increasingly, the business model is built upon free placement of the system with recurring revenue then being generated from the subsequent sale of a consumable per operation.

Progress made by the company in 2020  includes:

  • An initial fundraising in 2020 which raised £750,000 following which a Crowdcube funding campaign was launched. To date the fundraising has achieved £1.225 million.
     
  • Year over year sales being up in spite of C-19 but pressures on elective surgery have resulted in significant revenue shortfall to budget.
     
  • Spanish distributor MBA continuing to lead the way and has ordered 3 new Panorama robots from the company.
     
  • Announcing a new distribution partnership with Imperial Medical Solutions to support sales in India, Sri Lanka, Malaysia and the Caribbean.
 

The current fundraising has been through the issue of A Ordinary shares which carry a one times repayment preference. In addition further A Ordinary shares with the same preference have been issued to redeem certain outstanding liabilities. At the present time the Board considers it unlikely that the Ordinary share pool investment in ORP can be valued in excess of the value of the A Ordinary shares issued. The Ordinary share pool does not hold any A Ordinary shares.

 
Cost: £765,000
Valuation: £nil
Equity held: 3.7%
Last statutory accounts: 31 March 2020
Turnover: Not Disclosed
Loss before tax: Not Disclosed
Net liabilities: £4.6 million
Valuation method: Carrying value reduced to £nil

5.       ImmunoBiology Limited

Initial investment date: November 2005 ImmunoBiology (“ImmBio”) is a biotechnology company that is focused on developing treatments for illnesses such as meningitis, tuberculosis, influenza and hepatitis C. The company’s technology is based on the discovery that a group of proteins known as ‘heat shock proteins’ has a pivotal role in controlling the normal immune response to infections. The focus is currently on a vaccine for Pneumococcal Disease, for which the challenge is that there are >90 strains in circulation but present treatments address only a small proportion. In 2016 a first in human study demonstrated safety in adults.

 

ImmBio - formally known as ImmunoBiology Ltd has licensed its pneumococcal vaccine to China National Biotech Group. It has completed certain parts of its technology transfer and is now seeking to start a phase 2 study of the same vaccine. Coronavirus has again highlighted the importance of vaccines to the world and in recent years pneumococcal disease has claimed a similar number of deaths as C-19 in 2020. An existing vaccine has reduced the death rate, but the existing vaccines only protect against fewer than 20 of the 90 or so existing strains. As ImmBio’s ImmBioVax technology utilises heat shock proteins to activate T-cell responses, it is hoped that it can be used to create vaccines for a wide range of currently poorly served infectious diseases.

 

ImmBio has a complex equity structure which has impacted the investment valuation. As such, the Board does not believe that the Company’s Ordinary share pool’s investment currently has any value.

 

Progress made by the company in 2020 includes:

 

  • Continuing with the technology transfer to a subsidiary company of China National Biotec Group to co-develop ImmBio’s proprietary PnuBioVax vaccine against pneumococcal disease and launch the pneumococcal vaccine in the Greater China area upon completion of successful clinical studies but there is also a requirement to start a clinical trial outside China which needs funding.
     
  • Improving the required storage conditions. (hoping to achieve refrigerator storage) via their  partnership with CPI (an independent technology innovation centre) to produce a Pneumococcal vaccine which is heat stable, thus avoiding the need (and inherent expense) of the cold chain – ImmBio estimate there to be c.50 million patients annually who could benefit from such a vaccine.
     
  • Commencing discussion with a number of strategic partners and vaccine producers, some of whom have technology to use Immbio’s approach; there are regulatory challenges but C-19 may help in this scenario. It has certainly made everyone more receptive to vaccines and with different mutations, universal vaccines become more popular. Existing C-19 vaccine suppliers are also keen to have a  second or third approach on their books especially which doesn’t need to keep up with changing strains; this may be beneficial to Immbio.
 

Almost all staff are currently furloughed, whilst further funds can be obtained.
Cost:  £868,000
Valuation:  £nil
Equity held:  1.2%
Last statutory accounts:  31 May 2020
Turnover:  £nil
Loss before tax:  £594,000
Net assets:  £262,000
Valuation method: Carrying value reduced to £nil

6.       Microarray Limited

Initial investment date: January 2011 Microarray Ltd is a UK-based specialist wound healing company. Founded in 2000, Microarray was de-merged from Archimed, a spin-out from Insense (see above): the company is now privately owned.

The company has access to wide ranging expertise in the fields of wound dressing product development, marketing and sales; electrochemistry and diagnostic sensor technologies; biochemistry, oxygen and iodine chemistry; enzymology, immunology and inflammation. Current research and development activities are concentrated on innovative wound care diagnostics.

Microarray owns and continues to develop new intellectual property in its specialist fields. It works independently and with expert academic and industrial partners.

Progress made by the company in 2020 includes:

  • Designing and gaining the necessary approvals for our next clinical trial looking at chronic wound state biomarkers. C-19 has affected the recruitment of patients for the trial, which is now hoped to start  in Q3/2021.
     
  • In parallel, the company continues to use machine-learning methods to analyse the clinical data  collected to date, and is investigating the commercial potential of these non-biomarker assets.
Previously product testing results have not provided the indicators that the company hoped for in terms of assessing whether a wound is infected or not. As a result of this adverse outcome in relation to an area of focus for the company, the carrying value of the investment of the Ordinary share portfolio’s investment in Microarray Limited has been reduced to £nil. Notwithstanding the above, the company is continuing to develop its wound diagnostic products as the progress in 2020 indicates.
Cost: £132,000
Valuation: £nil
Equity held: 3.0%
Last statutory accounts: 31 December 2019
Turnover: Not Disclosed
Loss before tax: Not Disclosed
Net liabilities: £(4 million)
Valuation method: Carrying value reduced to £nil

Ordinary Share Pool – Investment Portfolio – AIM Quoted Investment as at 31 December 2020

1.       Scancell plc

Initial investment date: December 2003 Scancell is an AIM listed biotechnology company that is developing a pipeline of therapeutic vaccines to target various types of cancer, with the first target being melanoma.

 

The Immunobody platform technology, in effect, educates the immune system how to respond – this means that the technology can also be licensed to pharmaceutical companies to assist the development of their own therapeutic vaccines, which is an area of emerging importance for which a number of big pharmas do not have in-house technology. In addition, in 2012 a second platform technology, Moditope, was announced and is based on exploiting the normal immune response to stressed cells and is complementary to the Immunobody platform. The AvidMab platform was established in 2018 which allows direct tumour killing.

 

Scancell continues to develop its multiple technologies. Progress made by the company in 2020 includes:

 

  • The company received FDA approval in February 2020 to initiate the US arm of the Phase 2 SCIB1 clinical trial although C-19 has delayed patient recruitment. The Modi-1 Phase1/2 trial is progressing for regulatory submission with a planned study start in the UK in the first half of 2021. GMP drug manufacture is advancing and formal regulatory-compliant toxicity studies are complete The new AvidiMab platform has also generated significant interest and further agreements have been signed with different partners to evaluate its potential, which if successful, could translate into important commercial deals.
     
  • In April Scancell announced it had initiated a research project to use its clinical expertise in cancer to produce a simple, safe, cost effective and scalable vaccine which could induce a durable response against the virus that causes C-19. The project is funded by a £2 million Innovate UK grant awarded in August to a consortium between Scancell, University of Nottingham and Nottingham Trent University. Scancell has now selected their C-19 vaccine candidate, SN14, for further development and clinical trials. SN14 is a second generation vaccine which offers several potential advantages over currently approved and late-stage C-19 vaccines. In October, it entered into a collaboration with Cobra Biologics, part of the Cognate BioServices family, to conduct preliminary work leading to the manufacture of SN14 with the goal of starting a Phase 1 COVIDITY clinical trial as soon as possible during 2021.
     
  • During the year, the company completed two successful fund raises totalling £48 million (£46.1 million net proceeds) from the issue of shares and convertible loan notes (CLN): In August, it raised £15 million at a price of 5.5p per share (includes a residual amount of £1.75m held in CLN, and which included a significant new US institutional investor (Redmile Group LLC, “Redmile”). This funding will allow planned trials to continue while partnering discussions are pursued. In October, a further £33m was raised predominately from Redmile: £15.1m in equity at 11p per share and £17.9m in CLN. Redmile now holds just under 30% of the equity and all of the CLN, and Vulpes Life Science Fund 14.5%. These additional funds will extend the utility of the company's ImmunoBodyTM, ModitopeTM, and AvidiMab/tumour-associated glycans ("TaG") antibody products and platforms and to accelerate and broaden its development pipeline of new potential novel therapies and increase the funding available for the company's C-19 vaccine.
             

As a result of these developments, the Scancell share price has seen much volatility with prices ranging from 4p to 20p during the year. These valuations are based on a bid price of 13.5p per share and the bid price was 24.5p per share at 19 February 2021.
Cost (of the portion of the original investment still held as at 31 December 2020): £726,000
Valuation: £1,620,000
Equity held: 1.5%
Last statutory accounts: 30 April 2019
Turnover: £nil
Loss before tax: £6.7 million
Net assets: £9.3 million
Valuation method: Bid price of 13.5p per share

Richard Manley
Seneca Partners Limited
22 February 2021

Directors’ Report

The Directors present their Report and the audited Financial Statements for the year ended 31 December 2020.

The Directors consider that the Annual Report and Financial Statements, taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Review of Business Activities

The Directors are required by section 417 of the Companies Act 2006 to include a Business Review to shareholders. This is set out on page 36 and forms part of the Strategic Report. The purpose of the Business Review is to inform members of the Company and help them assess how the Directors have performed their duty under section 172 of the Companies Act 2006 (duty to promote the success of the Company). The Company’s section 172 Statement on page 6, the Chairman's Statement on page 8 to 13, and the Investment Manager’s Report on pages 14 to 35 also form part of the Strategic Report.

The purpose of this review is to provide shareholders with a snapshot summary setting out the business objectives of the Company, the Board’s strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators used to measure performance.

Directors’ Shareholdings – Ordinary shares

The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued Ordinary shares of 1p are shown in the table below:

  31 December 2020 31 December 2019
  Number of Shares Number of Shares
John Hustler  190,000 190,000
Alex Clarkson - -
Richard Manley - -
Richard Roth  209,612 209,612

All of the Directors’ shares were held beneficially. There have been no changes in the Directors’ Ordinary share interests between 31 December 2020 and the date of this report.

Directors’ Shareholdings – B Shares

The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued B shares of 1p are shown in the table below:

  31 December 2020 31 December 2019
  Number of Shares Number of Shares
John Hustler  - -
Alex Clarkson - -
Richard Manley 62,071 51,010
Richard Roth  15,000 15,000

All of the Directors’ B shares were held beneficially. There have been no changes in the Directors’ B share interests between 31 December 2020 and the date of this report.

Directors’ and Officers’ Liability Insurance

The Company has maintained directors’ and officers’ liability insurance cover on behalf of the Directors, Company Secretary and Investment Manager.

Whistleblowing

The Board has approved a Whistleblowing Policy for the Company, its Directors and any employees, consultants and contractors, to allow them to raise concerns, in confidence, in relation to possible improprieties in matters of financial reporting and other matters.

Bribery Act

The Board has approved an Anti-Bribery Policy to ensure full compliance with the Bribery Act 2010 and to ensure that the highest standards of professional and ethical conduct are maintained.

Management

Seneca as the Company’s Investment Manager is responsible for the management of the Company’s B share pool investments. Responsibility for the management of the Ordinary share pool investments has been delegated to those members of the current Board of Directors who served immediately prior to 23 August 2018, namely John Hustler and Richard Roth.

The strategies and policies which govern the Investment Manager have been set by the Board in accordance with section 172 of the Companies Act 2006.

Corporate Governance Statement

The Board has considered the principles and recommendations of the 2019 AIC Code. The Company’s Corporate Governance policy is set out on pages 50 to 54.

The 2019 AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the 2019 AIC Code adapts the Principles and Provisions set out in the UK Corporate Governance Code (the “UK Code”) to make them relevant for investment companies.

The Company has complied with the recommendations of the 2019 AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below:

  • The Company does not have a Chief Executive Officer or a Senior Independent Director. The Board does not consider this necessary as it does not have any executive directors. 
  • New Directors do not receive a formal induction on joining the Board, though they do receive one tailored to them on an individual basis.
  • The Company conducts a formal review as to whether there is a need for an internal audit function. However, the Directors do not consider that an internal audit would be an appropriate control for this VCT at this time. 
  • The Company does not have a Remuneration Committee as it does not have any executive directors.
  • The Company does not have a Nomination Committee as these matters are dealt with by the Board.

For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers the above provisions are not relevant to the position of the Company, being an investment company run by the Board and managed by the Investment Manager. In particular, all of the Company’s day-to-day administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations.

Directors

Biographical details of the Directors are shown on page 42. 

In accordance with the Articles of Association and good governance, all four Directors will retire and offer themselves for re-election at the forthcoming AGM.

The Board is satisfied that, following individual performance appraisals, the Directors who are retiring continue to be effective and demonstrate commitment to their roles and therefore offer themselves for re-election with the support of the Board. Further details regarding the Company’s succession planning are set out in the Corporate Governance policy on pages 51 to 52.

The Board did not identify any conflicts of interest between the Chairman’s interest and those of the shareholders, especially with regard to the relationship between the Chairman and the Investment Manager.

No concerns about the operation of the Board or the Company were raised by any Director during the period and had any been raised they would be mentioned in the minutes or in writing to the Chairman to be circulated to the Board in accordance with Provision 5.2 of the 2019 AIC Code.

The Board is cognisant of shareholders’ preference for Directors not to sit on the boards of too many listed companies (“over-boarding”). The Board is satisfied that all Directors have the time to focus on the requirements of the Company.

International Financial Reporting Standards

As the Company is not part of a group it is not mandatory for it to comply with International Financial Reporting Standards (“IFRS”). The Company does not anticipate that it will voluntarily adopt IFRS. The Company has adopted Financial Reporting Standard 102 – The Financial Reporting Standard Applicable in the United Kingdom and the Republic of Ireland.

Environmental, Social and Governance (“ESG”) Practices

The Board recognises the requirement under section 414c of the Companies Act 2006 to detail information about environmental matters (including the impact of the Company’s business on the environment), employee and human rights, social and community issues, including information about any policies it has in relation to these matters and effectiveness of these policies.

Given the size and nature of the Company’s activities and the fact that it has no employees and only four non-executive Directors, the Board considers there is limited scope to develop and implement environmental, social and community policies, but recognises the importance of including consideration for such matters in investment decisions. The Board has taken into account the requirement of section 172(1) of the Companies Act 2006 and the importance of ESG matters when making decisions which could impact shareholders, stakeholders and the wider community. The Company’s Section 172(1) statement has been provided in the Strategic Report on page 6, where the Directors consider the information to be of strategic importance to the Company.

The Company seeks to ensure that its business is conducted in a manner that is responsible to the environment. The management and administration of the Company is undertaken by the Investment Manager who recognises the importance of its environmental responsibilities, monitors its impact on the environment and implements policies to reduce any negative environmental impact and which promote environmental sustainability.

The Investment Manager recognises that managing investments on behalf of clients involves taking into account a wide set of responsibilities in addition to seeking to maximise financial returns for investors. Industry practice in this area has been evolving rapidly and the Company seeks to be an active participant by working to define and strengthen its principles accordingly. This involves both integrating ESG considerations into the Investment Manager’s investment decision-making process as a matter of course, and also signing up to major external bodies who are leading influencers in the formation of industry best practice. The following is an outline of the kinds of ESG considerations that the Investment Manager is taking into account as part of its investment process.

Environmental

Seneca, as part of its commercial due diligence practices and ongoing monitoring, examines potential issues which could arise from supply chains, climate change and environmental policy compliance. The Investment Manager looks for management teams who are aware of the issues and are proactive in responding to them.

Social

Seneca seeks to avoid unequivocal social negatives, such as profiting from forced labour within its investment portfolio and to support positive impacts which will more likely find support from customers and see rising demand. Seneca does not tolerate modern slavery or human trafficking within its business operations and takes a risk-based approach in respect of our portfolio companies. Seneca actively engages with portfolio companies and their boards to discuss material risks, ranging from business and operational risks to environmental and social risks.

Governance

Seneca examines and, where appropriate, engages with companies on board membership, remuneration, conflicts of interest such as related party transactions, and business leadership and culture. In addition, the Company, as a matter of course, exercises its voting rights when possible.

Greenhouse Gas (“GHG”) Emissions and Streamlined Energy & Carbon Reporting (“SECR”)

Under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (‘the 2013 Regulations’) and the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, quoted companies of any size are required under Part 15 of the Companies Act 2006 to disclose information relating to their energy use and GHG emissions.

All of the Company’s activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from its operations, nor does it have direct responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 and the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. For the same reasons as set out above, the Company considers itself to be a low energy user under the SECR regulations and therefore is not required to disclose energy and carbon information. A low energy user is defined as an organisation that uses 40 MWh or less during the reporting period. 

Going Concern

The Company’s business activities and the factors likely to affect its future performance and financial position are set out in the Chairman’s Statement and Investment Manager’s Report on pages 8 to 13 and pages 14 to 35. Further details on the management of the principal risks are set out on pages 39 to 40 and financial risks may be found in note 16 to the Financial Statements.

The Board receives regular reports from Seneca who acts as both the Investment Manager and the Administration Manager, and the Directors believe that, as no material uncertainties leading to significant doubt about going concern have been identified, it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

The assets of the Company consist mainly of securities, four of which are AIM quoted, relatively liquid and readily accessible, as well as more than £5 million of cash as at 31 December 2020 (47% of net assets). After reviewing the Company’s forecasts and expectations, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its Financial Statements.

The Company is also facing risks resulting from the impact of the C-19 pandemic. The Company’s Board and Investment Manager are focused on ensuring that investee companies are taking the required actions to minimise the potential impact that the C-19 pandemic could have on them. The Board and Seneca will continue to review risks posed by C-19 and keep those risks under regular review but do not consider the pandemic to have any impact on the Company’s own ability to continue as a going concern.

Share Capital

As disclosed on page 99 the Board has authority to make market purchases of the Company’s own B shares. No shares were purchased by the Company during the year (2019: nil).

At the last AGM held on 28 April 2020, the Board received authority to allot up to 35,000,000 B shares in connection with any offer(s) for subscription (and any subsequent top up offer of B shares) and up to 405,800 Ordinary shares (for any miscellaneous offers of such shares), which represented approximately 479% of the Company’s issued B share capital and approximately 5% of its issued Ordinary share capital as at 28 April 2020.

During the year, the Company did not issue any Ordinary shares (2019: nil). During the year, the Company issued 2,701,500 B shares raising £2.4 million before expenses (2019: 2,325,078 shares and £2.3 million) No further shares have been issued between 31 December 2020 and the date of this report.

The Company’s issued Ordinary share capital as at 31 December 2020 was 8,115,376 Ordinary shares of 1p each (31 December 2019: 8,115,376 Ordinary shares of 1p each) and 9,062,948 B shares of 1p each (31 December 2019: 6,361,448 B shares of 1p each). 

The total number of shares in issue for both the Ordinary shares and B shares of 1p each as at 31 December 2020 and 19 February 2021 was 17,178,324 (31 December 2019: 14,476,824) with each share having one vote.

In accordance with Schedule 7 of the Large and Medium Size Companies and Groups (Accounts and Reports) Regulations 2008, as amended, the Directors disclose the following information:

  • The Company’s capital structure and voting rights are summarised above, and there are no restrictions on voting rights nor any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights;
  • There exist no securities carrying special rights with regard to the control of the Company;
  • The rules concerning the appointment and replacement of directors, amendment of the Articles of Association and powers to issue or buy back of the Company’s shares are contained in the Articles of Association of the Company and the Companies Act 2006;
  • The Company does not have an employee share scheme;
  • There are no agreements to which the Company is party that may affect its control following a takeover bid; and
  • There are no agreements between the Company and its Directors providing for compensation for loss of office that may occur following a takeover bid or for any other reason, apart from their normal notice period and any fees potentially due under the performance fee arrangements set out on page 58 and note 6.

Substantial Shareholdings

At 31 December 2020 and at the date of this report, there was one holding of 3% and over of the Company’s ordinary share capital. This holding related to Share Nominees Ltd and amounted to 3.34%.

Annual General Meeting

The Notice convening the 2021 AGM of the Company is set out at the end of this document (and a form of proxy in relation to the meeting is enclosed separately). Part of the business of the AGM will be to consider resolutions in relation to the following matters:

Resolutions 3 to 6 will seek the re-election of the existing four members of the Board as non-executive Directors of the Company.

Resolution 7 will seek the re-appointment of UHY Hacker Young LLP as Independent Auditor to the Company.

Resolution 8 will seek authorisation to determine the auditor’s remuneration.

Resolution 9 will authorise the Directors to allot further B shares and Ordinary shares. This will enable the Directors until the next AGM to allot up to 35,000,000 B shares in connection with any offer(s) for subscription (and any subsequent top up offer of B shares) and up to 405,800 Ordinary shares (for any miscellaneous offers of such shares), representing approximately 386% of the Company’s issued B share capital and approximately 5% of its issued Ordinary share capital as at 19 February 2021. 

Resolution 10 will authorise the Board, pursuant to the Act, to make one or more market purchases of up to 14.99% of the issued B share capital of the Company from time to time. The price paid must not be less than 1p per B share, nor more than 5% above the average middle market price of a B share for the preceding five business days. Any B shares bought back under this authority may be cancelled by the Board.

Resolution 11 will, under sections 570 of the Act, disapply pre-emption rights in respect of any allotment of the B shares and/or Ordinary shares authorised under Resolution 9.

Resolution 12 will adopt amended Articles of Association which are substantially in the same form as the Company’s current Articles of Association save that:

  1. existing Clause 146 regarding Unclaimed Dividends has been deleted and replaced with a new Clause 146 which provides the authorisation for all dividends, interest or other sum payable and unclaimed for 12 months after having become payable to be invested or otherwise made use of by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends unclaimed for a period of six years after having been declared or become due for payment shall (if the Board so resolves) be forfeited and shall cease to remain owing by the Company; and
     
  2. existing Clauses 53 to 56 (including the insertion of new Clauses 55A and 56A) have been amended to include the ability for the Company to hold partially virtual general meetings.
     
  3. Existing Clause 102 will be amended to authorise an increase in the total remuneration payable to the Directors to £100,000 to allow for the appointment of a new non-executive Director.

The Directors intend to use the authorities in Resolutions 9 and 11 for the purposes of the current Offer and a further offer for subscription of B shares. The Directors have no current intention to utilise the authority in relation to the Ordinary shares.

Copies of the Articles of Association of the Company (including a mark-up of the new articles of association proposed to be adopted pursuant to resolution 12) will be available for inspection at the registered office of the Company during usual business hours on any weekday (Saturday and Public Holidays excluded) from the date of this notice, until the end of the Annual General Meeting and at the place of the Annual General Meeting for at least 15 minutes prior to and during the meeting. However, given that shareholders will be unable to attend the AGM this year, the Articles of Association will also be available on the Company’s website at https://senecavct.co.uk/reports-documents/.

Recommendation

The Board believes that the passing of the resolutions above are in the best interests of the Company and its shareholders as a whole and unanimously recommends that you vote in favour of these resolutions as the Directors intend to do in respect of their beneficial shareholdings.

By Order of the Board

Craig Hunter
Company Secretary
22 February 2021

Combined Income Statement

    Combined
Year to 31 December 2020
Combined
Year to 31 December 2019
    Revenue Capital Total Revenue Capital Total
  Note £’000 £’000 £’000 £’000 £’000 £’000
               
Gain on disposal of fixed asset investments   - 948 948 - 52 52
               
Gain/(loss) on valuation of fixed asset investments   - 682 682 - (752) (752)
               
Income 2 - - - - - -
               
Performance fee 6 - (140) (140) - 136 136
               
Investment management fee net of cost cap 3 (10) (31) (41) (7) (21) (28)
               
Other expenses 4 (150) (2) (152) (123) - (123)
Return on ordinary activities before tax   (160) 1,457 1,297 (130) (585) (715)
               
Taxation on return on ordinary activities 7 - - - - - -
               
Return on ordinary activities after tax   (160) 1,457 1,297 (130) (585) (715)
Return on ordinary activities after tax attributable to:              
Owners of the fund   (160) 1,457 1,297 (130) (585) (715)

There was no other Comprehensive Income recognised during the year

  • The ‘Total’ column of the income statement and statement of comprehensive income is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies.
  • All revenue and capital items in the above statement derive from continuing operations.
  • The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds.
  • The Company has two share classes, the Ordinary share and B share class.

The Company has no recognised gains or losses other than the results for the year as set out above.

The accompanying notes are an integral part of the Financial Statements.

Ordinary Share Income Statement
(non-statutory analysis)

    Ordinary shares
Year to 31 December 2020
Ordinary shares
Year to 31 December 2019
    Revenue Capital Total Revenue Capital Total
  Note £’000 £’000 £’000 £’000 £’000 £’000
               
Gain on disposal of fixed asset investments   - 720 720 - 38 38
               
Gain/(loss) on valuation of fixed asset investments 10 - 467 467 - (725) (725)
               
Income 2 - - - - - -
               
Performance fee 6 - (140) (140) - 136 136
               
Investment management fee 3 - - - - - -
               
Other expenses 4 - (2) (2) 4 - 4
Return on ordinary activities before tax   - 1,045 1,045 4 (551) (547)
               
Taxation on return on ordinary activities 7 - - - - - -
               
Return on ordinary activities after tax   - 1,045 1,045 4 (551) (547)
Return on ordinary activities after tax attributable to:              
Ordinary shareholders   - 1,045 1,045 4 (551) (547)
Earnings per share – basic and diluted 8 0.0p 12.8p 12.8p 0.0p (6.7)p (6.7)p

B Share Income Statement (non-statutory analysis)

    B shares
Year to 31 December 2020
B shares
Year to 31 December 2019
    Revenue Capital Total Revenue Capital Total
  Note £’000 £’000 £’000 £’000 £’000 £’000
               
Gain on disposal of fixed asset investments   - 228 228 - 14 14
               
Gain/(loss) on valuation of fixed asset investments 10 - 215 215 - (27) (27)
               
Income 2 - - - - - -
               
Performance fee 6 - - - - - -
               
Investment management fee net of cost cap 3 (10) (31) (41) (7) (21) (28)
               
Other expenses 4 (150) - (150) (127) - (127)
Return on ordinary activities before tax   (160) 412 252 (134) (34) (168)
               
Taxation on return on ordinary activities 7 - - - - - -
               
Return  on ordinary activities after tax   (160) 412 252 (134) (34) (168)
Return on ordinary activities after tax attributable to:              
B shareholders   (160) 412 252 (134) (34) (168)
Earnings per share – basic and diluted 8 (2.2)p 5.7p 3.5p (2.5)p (0.7)p (3.2)p

Combined Statement of Changes in Equity

  Share capital Share
premium
Special distributable reserve Capital reserve realised gains/
(losses)
Capital reserve holding gains/
(losses)
Revenue reserve Total
  £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 1 January 2019 121 568 10,839 1,029 (1,309) (1,967) 9,281
B share issue 24 2,238 - - - - 2,262
Revenue return on ordinary activities after tax - - - - - (130) (130)
Expenses charged to capital - - - (21) - - (21)
Performance fee allocated as capital expenditure - - - 136 - - 136
Dividends paid - - (2,444) - - - (2,444)
Current period gains on disposal - - - 52 - - 52
Current period losses on fair value of investments - - - - (752) - (752)
Balance as at 31 December 2019 145 2,806 8,395 1,196 (2,061) (2,097) 8,384
B share issue 27 2,363 - - - - 2,390
Revenue return on ordinary activities after tax - - - - - (160) (160)
Expenses charged to capital - - - (33) - - (33)
Performance fee allocated as capital expenditure - - - (140) - - (140)
Dividends paid - - (1,301) - - - (1,301)
Current period gains on disposal - - - 948 - - 948
Current period gains on fair value of investments - - - - 682 - 682
Prior years' unrealised losses now realised - - - (267) 267 - -
Balance as at 31 December 2020 172 5,169 7,094 1,704 (1,112) (2,257) 10,770

The accompanying notes are an integral part of the Financial Statements.

Ordinary Shares - Statement of Changes in Equity

  Share capital Share
premium 
Special distributable reserve Capital reserve realised  gains/
(losses)
Capital reserve holding gains/
(losses)
Revenue reserve Total
  £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 1 January 2019 81 - 7,412 1,047 (1,309) (1,949) 5,282
Revenue return on ordinary activities after tax - - - - - 4 4
Performance fee allocated as capital expenditure - - - 136 - - 136
Dividends paid - - (2,272) - - - (2,272)
Current period gains on disposal - - - 38 - - 38
Current period losses on fair value of investments - - - - (725) - (725)
Balance as at 31 December 2019 81 - 5,140 1,221 (2,034) (1,945) 2,463
Revenue return on ordinary activities after tax - - - - - - -
Expenses charged to capital - - - (2) - - (2)
Performance fee allocated as capital expenditure - - - (140) - - (140)
Dividends paid - - (1,055) - - - (1,055)
Current period gains on disposal - - - 720 - - 720
Current period gains on fair value of investments - - - - 467 - 467
Prior years' unrealised losses now realised - - - (267) 267 - -
Balance as at 31 December 2020 81 - 4,085 1,532 (1,300) (1,945) 2,453

B Shares - Statement of Changes in Equity

  Share capital Share
premium 
Special distributable reserve Capital reserve realised  gains/
(losses)
Capital reserve holding gains/
(losses)
Revenue reserve Total
  £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 1 January 2019 40 568 3,427 (18) - (18) 3,999
B share issue 24 2,238 - - - - 2,262
Revenue return on ordinary activities after tax - - - - - (134) (134)
Expenses charged to capital - - - (21) - - (21)
Dividends paid - - (172) - - - (172)
Current period gains on disposal - - - 14 - - 14
Current period losses on fair value of investments - - - - (27) - (27)
Balance as at 31 December 2019 64 2,806 3,255 (25) (27) (152) 5,921
B share issue 27 2,363 - - - - 2,390
Revenue return on ordinary activities after tax - - - - - (160) (160)
Expenses charged to capital - - - (31) - - (31)
Dividends paid - - (246) - - - (246)
Current period gains on disposal - - - 228 - - 228
Current period gains on fair value of investments - - - - 215 - 215
Balance as at 31 December 2020 91 5,169 3,009 172 188 (312) 8,317


Combined Balance Sheet  
 

 
  Combined as at
31 December 2020
Combined as at
31 December 2019
  Note £'000 £'000 £'000 £'000
           
Fixed asset investments* 10 - 6,123   4,761
Current assets:          
Debtors 11 7 - 3  
Cash at bank and in hand   5,056   3,909  
Creditors: amounts falling due within one year 12 (223) - (236)  
Net current assets     4,840   3,676
Creditors: amounts falling due after more than one year 12 (193)   (53)  
Net assets     10,770   8,384
           
Called up equity share capital 13   172   145
Share premium 14   5,169   2,806
Special distributable reserve 14   7,094   8,395
Capital reserve – realised gains and losses 14   1,704   1,196
                         – holding gains and losses 14   (1,112)   (2,061)
Revenue reserve 14   (2,257)   (2,097)
Total equity shareholders' funds     10,770   8,384

*At fair value through profit and loss

The accompanying notes are an integral part of the Financial Statements.

The statements were approved by the Directors and authorised for issue on 22 February 2021 and are signed on their behalf by:

John Hustler
Chairman
Company No: 04221489

Ordinary Share Balance Sheet
(non-statutory analysis)
 
    Ordinary shares as at
31 December 2020
Ordinary shares as at
31 December 2019
  Note £'000 £'000 £'000 £'000
           
Fixed asset investments* 10   2,141   2,068
Current assets:          
Debtors   -   -  
Cash at bank and in hand   527   470  
Creditors: amounts falling due within one year   (22)   (22)  
Net current assets     505   448
Creditors: amounts falling due after more than one year 12 (193)   (53)  
Net assets     2,453   2,463
           
Called up equity share capital 13   81   81
Share premium     -   -
Special distributable reserve     4,085   5,140
Capital reserve – realised gains and losses     1,532   1,221
                         – holding gains and losses     (1,300)   (2,034)
Revenue reserve     (1,945)   (1,945)
Total equity shareholders' funds     2,453   2,463
Net asset value per share 9   30.2p   30.4p

*At fair value through profit and loss

B Share Balance Sheet (non-statutory analysis)  
    B shares as at
31 December 2020
B shares as at
31 December 2019
  Note £'000 £'000 £'000 £'000
           
Fixed asset investments* 10   3,982   2,693
Current assets:          
Debtors   7   3  
Cash at bank and in hand   4,529   3,439  
Creditors: amounts falling due within one year   (201)   (214)  
Net current assets     4,335   3,228
Creditors: amounts falling due after more than one year 12 -   -  
Net assets     8,317   5,921
           
Called up equity share capital 13   91   64
Share premium     5,169   2,806
Special distributable reserve     3,009   3,255
Capital reserve – realised gains and losses     172   (25)
                         – holding gains and losses     188   (27)
Revenue reserve     (312)   (152)
Total equity shareholders' funds     8,317   5,921
Net asset value per share 9   91.8p   93.1p

*At fair value through profit and loss

Combined Statement of Cash Flows

  Note Combined Year to
31 December 2020
£'000
Combined Year to
31 December 2019
£'000
Cash flows from operating activities      
Return on ordinary activities before tax   1,297 (715)
Adjustments for:      
(Increase)/decrease in debtors 11 (4) 20
Increase/(decrease) in creditors 12 143 (143)
Gain on disposal of fixed asset investments   (948) (52)
(Gain)/loss on valuation of fixed asset investments   (682) 752
Cash from operations   (194) (138)
Income taxes paid 7 - -
Net cash used in operating activities   (194) (138)
       
Cash flows from investing activities      
Purchase of fixed asset investments 10 (1,360) (2,248)
Sale of fixed asset investments 10 1,628 80
Total cash inflow/(outflow) from investing activities   268 (2,168)
       
Cash flows from financing activities
Dividend paid
  (1,301) (2,444)
Issue of B shares   2,390 2,262
Awaiting B share issue 12 (16) (49)
Total cash inflow/(outflow) from financing activities   1,073 (231)
       
Increase/(decrease) in cash and cash equivalents   1,147 (2,537)
       
Opening cash and cash equivalents   3,909 6,446
       
Closing cash and cash equivalents   5,056 3,909

                                                                                               
The accompanying notes are an integral part of the Financial Statements.

Ordinary Shares Statement of Cash Flows
(non-statutory analysis)

  Note Ordinary shares
Year to
31 December 2020
£'000
Ordinary shares
Year to
31 December 2019
£'000
Cash flows from operating activities      
Return on ordinary activities before tax   1,045 (547)
Adjustments for:      
(Increase)/decrease in debtors   - -
Increase/(decrease) in creditors   140 (174)
Gain on disposal of fixed asset investments   (720) (38)
(Gain)/loss on valuation of fixed asset investments 10 (467) 725
Cash from operations   (2) (34)
Income taxes paid 7 - -
Net cash used in operating activities   (2) (34)
       
Cash flows from investing activities      
Sale of fixed asset investments 10 1,114 38
Total cash inflow from investing activities   1,114 38
       
Cash flows from financing activities
Dividend paid
  (1,055) (2,272)
Total cash outflow from financing activities   (1,055) (2,272)
       
Increase/(decrease) in cash and cash equivalents   57 (2,268)
       
Opening cash and cash equivalents   470 2,738
       
Closing cash and cash equivalents   527 470

 

B Shares Statement of Cash Flows
(non-statutory analysis)

  Note B shares
Year to
31 December 2020
£'000
B shares
Year to
31 December 2019
£'000
Cash flows from operating activities      
Return on ordinary activities before tax   252 (168)
Adjustments for:      
(Increase)/decrease in debtors   (4) 20
Increase in creditors   3 31
Gain on disposal of fixed asset investments   (228) (14)
(Gain)/loss on valuation of fixed asset investments 10 (215) 27
Cash from operations   (192) (104)
Income taxes paid 7 - -
Net cash used in operating activities   (192) (104)
       
Cash flows from investing activities      
Purchase of fixed asset investments 10 (1,360) (2,248)
Sale of fixed asset investments 10 514 42
Total cash outflow from investing activities   (846) (2,206)
       
Cash flows from financing activities
Dividend paid
  (246) (172)
Issue of B shares   2,390 2,262
Awaiting B share issue 12 (16) (49)
Total cash inflow from financing activities   2,128 2,041
       
Increase/(decrease) in cash and cash equivalents   1,090 (269)
       
Opening cash and cash equivalents   3,439 3,708
       
Closing cash and cash equivalents   4,529 3,439

 

Notes to the Financial Statements

1.     Principal Accounting Policies

Basis of preparation

The Financial Statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (“GAAP”), including FRS 102 and with the Companies Act 2006 and the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts (revised 2019)’.

The principal accounting policies have remained materially unchanged from those set out in the Company’s 2019 Annual Report and Financial Statements. A summary of the principal accounting policies is set out below.

The Company is a public company and is limited by shares. The Company held all fixed asset investments at fair value through profit or loss. Accordingly, all interest income, fee income, expenses and gains and losses on investments are attributable to assets held at fair value through profit or loss.

The most important policies affecting the Company’s financial position are those related to investment valuation and require the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. These are discussed in more detail below.

Going Concern

The assets of the Company consist mainly of securities, four of which are AIM quoted, quite liquid and readily accessible, as well as cash. As at 31 December 2020, 47% of net assets was cash. After reviewing the Company’s forecasts and expectations, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its Financial Statements.

In addition to the above, the Company is also facing risks resulting from the impact of the C-19 pandemic. The Company’s Board and Investment Manager are focused on ensuring that investee companies are taking the required actions to minimise the potential impact that the C-19 pandemic could have on them.  The Board and Seneca will continue to review risks posed by C-19 and keep those risks under regular review.

Key judgements and estimates

The preparation of the Financial Statements requires the Board to make judgements and estimates regarding the application of policies affecting the reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly unquoted investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments.

Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments are valued in accordance with current International Private Equity and Venture Capital Valuation (IPEV) guidelines, which can be found on their website at www.privateequityvaluation.com, although this does rely on subjective estimates such as appropriate sector earnings or revenue multiples, forecast results of investee companies, asset values of investee companies and liquidity or marketability of the investments held. The material factors affecting the returns and net assets attributable to shareholders of the different share classes are the valuations of the Ordinary and B share pools and ongoing general expenses.

Although the Directors believe that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could result in changes in the stated values. This could lead to additional changes in fair value in the future.

Functional and presentational currency

The Financial Statements are presented in Sterling (£). The functional currency is also Sterling (£).

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.

Fixed asset investments

The Company’s principal financial assets are its investments and the policies in relation to those assets are set out below.

Purchases and sales of investments are recognised in the Financial Statements at the date of the transaction (trade date).

These investments will be managed and their performance evaluated on a fair value basis and information about them is provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company's investments are measured at subsequent reporting dates at fair value.

In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. In the case of AIM quoted investments this is the closing bid price. In the case of unquoted investments, fair value is established by using measures of value such as the price of recent transactions, earnings or revenue multiples, discounted cash flows and net assets. These are consistent with the IPEV guidelines.

Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - holding gains/(losses).

In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.

Fair value hierarchy

Paragraph 34.22 of FRS 102 regarding financial instruments that are measured in the balance sheet at fair value requires disclosure of fair value measurements dependent on whether the stock is quoted and the level of the accuracy in the ability to determine its fair value. The fair value measurement hierarchy is as follows:

For quoted investments:

Level 1: quoted prices in active markets for an identical asset. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held is the bid price at the Balance Sheet date.

Level 2: where quoted prices are not available (or where a stock is normally quoted on a recognised stock exchange that no quoted price is available), the price of a recent transaction for an identical asset, providing there has been no significant change in economic circumstances or a significant lapse in time since the transaction took place. The Company held no such investments in the current or prior year.

For investments not quoted in an active market:
Level 3: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data (eg: the price of recent transactions, earnings/revenue multiple, discounted cash flows and/or net assets) where it is available and rely as little as possible on entity specific estimates.

There have been no transfers between these classifications in the year (2019: none). The change in fair value for the current and previous year is recognised through the profit and loss account.

Current asset investments

No current asset investments were held at 31 December 2020 or 31 December 2019. Should current assets be held, gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - gains/(losses) on disposal.

Income

Investment income includes interest earned on bank balances and from unquoted loan note securities, and dividends. Fixed returns on debt are recognised on a time apportionment basis so as to reflect the effective yield, provided it is probable that payment will be received in due course.

The Company has not generated any income in 2020 (2019: £nil).

Expenses

All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception of the performance and management fee. The performance fee is charged 100% to the capital reserve and the investment management fee charged to the B shares has been split 25% revenue and 75% capital, in line with industry practice and to reflect the Board’s estimated split of investment returns which will be achieved by the Company’s B shares over the long term. Expenses and liabilities not specific to a share class are allocated to the B share pool for a period of three years from 1 July 2018 in line with the Articles of Association.

Revenue and capital

The revenue column of the Income Statement includes all income and revenue expenses of the Company. The capital column includes gains and losses on disposal and holding gains and losses on investments, as well as those expenses that have been charged as capital costs. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the appropriate capital reserve on the basis of whether they are realised or unrealised at the Balance Sheet date.

Taxation

Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the applicable tax rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP.

Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date, except as otherwise indicated.

Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Financial instruments

The Company’s principal financial assets are its investments and its cash and the policies in relation to those assets are set out above. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument.

Capital management is monitored and controlled using the internal control procedures set out on page 53 of this report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid resources including debtors and creditors.

The Company does not have any externally imposed capital requirements.

Reserves

Called up equity share capital represents the nominal value of shares that have been issued.

Share premium account includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.

Special distributable reserve includes cancelled share premium and capital redemption reserves available for distribution and may be used to cover dividend payments.

Capital reserve – holding gains and losses created when the Company revalues the investments still held during the period with any gains or losses arising being credited/ charged to the Capital reserve.

Capital reserve – gains and losses on disposal created when an investment is sold. Any balance held in the Capital reserve – holding gains and losses is transferred to the Capital reserve – realised gains and losses on disposal and recognised as a movement in reserves.

Revenue reserve – represents the aggregate value of accumulated realised profits (excluding capital profits), less losses and dividends.

Dividends Payable

Dividends payable are recognised as distributions in the Financial Statements when the Company’s liability to make payment has been established. This liability is established for interim dividends when they are declared by the Board, and for final dividends when they are approved by shareholders.

2.     Income

  Year to
31 December 2020
Year to
31 December 2019
  £’000 £’000
Dividends received - -
Loan note interest receivable - -
  - -

Investment income includes interest earned on bank balances and dividends.

The Company has not generated any income in the period and as such we have not included any segmental reporting. In the event the Company had generated income, we would disclose information about the Company’s operating segments and the geographical areas in which they operate, which is currently in the United Kingdom.

3.     Investment Management Fees for B shares

     
  Year to
31 December 2020
£’000
Year to
31 December 2019
£’000
Gross Investment management fee 127 103
Cost cap refund from Seneca (86) (75)
Investment management fee net of cost cap 41 28

Seneca is entitled to an annual management fee of 2% of the weighted net asset value of the B share pool (2019: 2%) and, with effect from 1 August 2019, is also entitled to an annual fee of £9,000 (plus VAT, if applicable) in relation to management accounting services. These fees are payable quarterly in arrears. Seneca will also be entitled to certain monitoring fees from investee companies and the Board reviews the amounts (please see note 19).

Seneca are also entitled to receive a performance related incentive fee (the “Performance Incentive Fee”) in relation to the B share pool of an amount equal to 20% of the shareholder proceeds arising, provided that the payment of such a fee shall also be conditional upon (i) a return being generated on the B share pool for B shareholders in respect of that performance period of more than 5% per annum (pro-rated if that period is less than a year) and (ii) that such a return calculated for the period from 23 August 2018 to the end of the relevant performance period exceeds 5% per annum.

Shareholder proceeds are all amounts paid by way of dividend or other distributions, share buy backs, proceeds on a sale or liquidation of the Company in relation to the B shares and calculated on a per share basis, and any other proceeds or value received or deemed to be received by the holders of the relevant shares (excluding any income tax relief on subscription).

For the avoidance of doubt, no Performance Incentive Fee will be payable to the extent that the shareholder proceeds paid by the Company to the holders of the B shares have been justified by reference to distributable reserves otherwise attributable to the Ordinary share pool (as permitted in accordance with the Articles).

For a three-year period with effect from 1 July 2018, expenses of the Company are capped at 3% of the weighted average net asset value of the B shares, including the management fee (but excluding any performance fee). Following this initial period, expenses are capped at 3% across both the Ordinary share pool and the B share pool pro-rata to their respective net asset values.

The Investment Manager will indemnify the Company for any excess over the cost cap, with an amount equal to such excess either being paid by Seneca to the Company or refunded by way of a reduction to its fees. Accordingly, Seneca reduced its management fee by £86,000 in the year to 31 December 2020 (2019: reduced by £75,000).

Expenses are charged wholly to revenue with the exception of the (net) investment management fee which has been charged 75% to the capital reserve in line with industry practice and the performance fee.

4.     Other Expenses

  Year to
31 December 2020
Year to
31 December 2019
  £'000 £'000
Directors’ remuneration 50 33
Fees payable to the Company’s auditor for the audit of the Financial Statements 22 15
Legal and professional expenses 59 49
Accounting and administration services 7 12
Other expenses (revenue) 12 14
Other expenses (capital) 2 -
  152 123

All expenses were charged to the Ordinary shares for the period to 30 June 2018. In line with the offer for subscription for B shares, and following the initial allotment of B shares on 23 August 2018, all the Company’s general expenses are chargeable to the B share pool for a period of three years from 1 July 2018 (subject to the cost cap discussed in note 3). Any expenditure related specifically to assets in one pool is chargeable to that pool. It should be noted that the only items specifically relating to the Ordinary share pool relate to a £2k legal fee (2019: £4k credit of released accruals for advisory fees).

5.     Directors’ Remuneration

  Year to
31 December 2020
Year to
31 December 2019
  £ £
Directors’ emoluments:    
John Hustler (Chairman) 15,339 12,897
Charles Breese - 6,375
Richard Roth 19,608 12,897
Alex Clarkson 15,339 981
Richard Manley - -
  50,286 33,150

Richard Manley, a director of the Investment Manager, has elected to waive his Director’s fee, until the Company’s operating costs are less than the expenses cost cap.

As part of the Board’s regular review of Directors’ fees, it was determined that Richard Roth’s Director’s fee would increase to £20,000 per annum inclusive of all expenses with effect from 1 October 2020 to reflect the work performed by him in respect of his role as Chairman of the Audit Committee. It was also decided that Richard Roth would receive a one-off payment of £2,500 in respect of the work he performed as part of this role for the period prior to 1 October 2020. Apart from this, none of the Directors received any other remuneration from the Company during the year.

Directors’ emoluments include remuneration and employers’ National Insurance contributions.

Certain Directors may become entitled to receive a share of the performance incentive fee related to the Ordinary share pool as detailed in the Directors’ Remuneration Report on page 58 and in note 6.

The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was four (2019: four).

6.     Performance Fees for Ordinary shares

The performance incentive fees are calculated separately on the Ordinary shares and the B shares. Performance incentive fees in relation to the Ordinary shares are potentially payable to past and current members of the CAC. The current members of the CAC are John Hustler and Richard Roth.

The CAC entered into an agreement to take over management of the Company’s investments on 30 July 2007 (the “2007 Agreement”), and at that time, a revised performance incentive scheme was implemented, such that its members would be entitled to 20% of all cash returns above the initial net cost to subscribing shareholders of 80p (the “Accrued Performance Incentive Fee”).

On 7 October 2015, the performance incentive fee structure was further amended as follows. In respect of the period to 31 December 2014, the Accrued Performance Incentive Fee on the Ordinary share class of up to £702,000 shall be payable to James Otter (a former director of the Company who was also a member of the CAC), Charles Breese (a former director of the Company who was also a member of the CAC) and John Hustler, in equal proportions (with the liability to pay a director his share of such fee being extinguished if the fee is due for payment five years after his ceasing to be a member of the CAC. Such extinguished fees are credited back to the Company).

The liability to pay James Otter his share of any potential Accrued Performance Incentive Fee was extinguished on 7 October 2020 - the fifth anniversary of his ceasing to be a member of the CAC. No payment has, or will be paid, to James Otter under these schemes as the required shareholder distributions had not been made in time. The fee of £17,667 that had been accrued at 31 December 2019 for his potential benefit has been credited back to the Company, with the total potential liability for the Company now reduced from £702,000 to £468,000.

As a result of the reduction in the Accrued Performance Incentive Fee by one third, the amount of the Accrued Performance Incentive Fee shall be 16.67% of any dividends and capital distributions returned to shareholders, which in total exceed the sum of 80p per Ordinary share (the "Hurdle"). This includes dividends paid to date on the Ordinary shares, being 65.25p per share. As a result of this, for every £1 potentially distributable in excess of the Hurdle, 80p shall be distributed to shareholders and 13.33p shall be paid as the Accrued Performance Incentive Fee, with 6.67p (being one third of the original 20p) retainable by the Company up until an amount of 114.65p per Ordinary share has been distributed to Ordinary shareholders, after which no further payment is payable in respect of the Accrued Performance Incentive Fee or otherwise under the terms of the 2007 Agreement (as amended). The Accrued Performance Incentive Fee shall be paid at the same time as payments are made to the Ordinary shareholders. All distributions by way of dividends and capital distributions in relation to the Ordinary share class shall count towards the Accrued Performance Incentive Fee and where non-cash dividends are declared, the Company's auditors shall assess their value by reference to a distribution per share. Following payment in full of the Accrued Performance Incentive Fee, a further performance incentive fee may become payable to the CAC in relation to the period after 7 October 2015 (the, “Further Performance Incentive Fee”).

Following the amendment on 7 October 2015, any returns above the 31 December 2014 levels are subject to a further hurdle (the “Further Hurdle”), and the Further Performance Incentive Fee reduces the share to the CAC to 10% of sums returned to Ordinary shareholders by way of dividends and capital distributions of whatever nature, which in total exceed the Further Hurdle (excluding any initial tax relief on the subscription for the Ordinary shares). The "Base Figure" for the Further Hurdle shall be 90.4p per Ordinary share and shall be increased by a sum equal to notional interest thereon, at the rate of 1.467% per quarter from 1 January 2015, compounded with quarterly rests. For the purposes of determining the increase in the Base Figure, the amount on which notional interest is to accrue in each quarter shall be reduced by the amount of all sums returned to Ordinary shareholders by way of dividends and capital distributions in the previous quarter. Shareholders will need to have received distributions of 114.65p per Ordinary share, together with the amount to take account of notional interest as calculated above, before any Further Performance Incentive Fee is payable.

As at 31 December 2020, the Total Gross Return in respect of the Ordinary shares is 97.85p, and so 3.57p per Ordinary share, totalling £290,000 would have accrued, though only two thirds of the Accrued Performance Incentive Fee, 2.38p per Ordinary share totalling £193,000, has been accrued as part of this liability as a result of James Otter’s liability being extinguished as detailed above, resulting in the remainder being retainable by the Company (31 December 2019: 83.25, 0.65p and £53,000).

Assuming no dividends are paid on the Ordinary shares in 2021, the Total Gross Return would need to exceed 163.3p at 31 December 2021 before any Further Performance Incentive Fee could be due, and at that time, it would be 10% of any dividends or capital distributions made above this threshold. If the Further Performance Incentive Fee is not triggered (as it has not been in this financial year) the Further Hurdle, net of dividends paid, increments by a compound annual growth rate of 6%, applied quarterly as described above.

If the CAC consider it necessary to engage external advisors in support of managing its portfolio, the costs of this will be borne by the Ordinary share pool. The Further Performance Incentive Fee shall be divided among such members of the CAC (past, present and future) who have been members of that committee since the 7 October 2015, on a pro rata basis, linked to the relative amount of time since the date of the 7 October 2015 agreement for which each individual has been a member of the CAC. An individual will not be entitled to payment of any of Further Performance Incentive Fee if he ceased to be a member of the CAC in certain conditions, or ceased to be a member of the CAC more than five years before the payment of any amount of Further Performance Incentive Fee becomes due and any such fees will be credited back to the Company. For the purposes of the Further Performance Incentive Fee, the method of determining distributions will follow that used in calculating the Accrued Performance Incentive Fee.

7.     Tax on Ordinary Activities

The corporation tax charge for the period was £nil (2019: £nil).
The tax charge is calculated on return on ordinary activities before taxation at the applicable rate of 19.0% (2019: 19.0%)
                                                                                                                                                   

Current tax reconciliation: Year to
31 December 2020
£’000
Year to
31 December 2019
£’000
Return on Ordinary activities before tax 1,297 (715)
Current tax at 19% (2019: 19%)  246 (136)
Gains/losses not subject to tax (310) 133
Performance fee accrual not tax deductible 37 -
Excess management expenses carried forward 27 3
Total current tax charge and tax on results of ordinary activities - -

The company has excess management expenses of £2,896,000 (2019: £2,755,000) to carry forward to offset against future taxable profits.

Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.

8.     Earnings per Share

The earnings per Ordinary share is based on 8,115,376 (31 December 2019: 8,115,376) shares, being the weighted average number of Ordinary shares in issue during the year, and a return for the year totalling £1,045,000 (31 December 2019: (£547,000)).

The earnings per B share is based on 7,248,338 (31 December 2019: 5,269,973) shares, being the weighted average number of B shares in issue during the year, and a return for the year totalling £252,000 (31 December 2019: (£168,000)).

There are no potentially dilutive capital instruments in issue and, therefore, no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical.

9.     Net Asset Value per Share 

The calculation of NAV per Ordinary share as at 31 December 2020 is based on 8,115,376 Ordinary shares in issue at that date (31 December 2019: 8,115,376).

The calculation of NAV per B share as at 31 December 2020 is based on 9,062,948 B shares in issue at that date (31 December 2019: 6,361,448).

10.              Fixed Asset Investments

Ordinary Shares

  Level 1:
AIM-quoted investments
Level 3:
Unquoted
 investments
Total
investments
  £’000 £’000 £’000
Valuation and net book amount:      
Book cost as at 1 January 2020 1,117 2,985 4,102
Cumulative revaluation 117 (2,151) (2,034)
Valuation at 1 January 2020 1,234 834 2,068
       
Movement in the year:      
Purchases at cost - - -
Disposals – cost (391) (270) (661)
Disposals – revaluation (3) 270 267
Revaluation in year 780 (313) 467
Valuation at 31 December 2020 1,620 521 2,141
       
Book cost at 31 December 2020 726 2,715 3,441
Revaluation to 31 December 2020 894   (2,194) (1,300)
       
Valuation at 31 December 2020 1,620 521 2,141

B Shares

  Level 1:
AIM-quoted investments
Level 3:
Unquoted
 investments
Total
investments
  £’000 £’000 £’000
Valuation and net book amount:      
Book cost as at 1 January 2020 720 2,000 2,720
Cumulative revaluation (90) 63 (27)
Valuation at 1 January 2020 630 2,063 2,693
       
Movement in the year:      
Purchases at cost 576 784 1,360
Disposals – cost (286) - (286)
Disposals – revaluation - - -
Revaluation in year 415 (200) 215
Valuation at 31 December 2020 1,335 2,647 3,982
       
Book cost at 31 December 2020 1,010 2,784 3,794
Revaluation to 31 December 2020 325 (137) 188
       
Valuation at 31 December 2020 1,335 2,647 3,982

Further details of the fixed asset investments held by the Company are shown within the Investment Manager’s Report on pages 14 to 35.

All investments are initially measured at their transaction price. Subsequently, at each reporting date, the investments are valued at fair value through profit or loss, and all capital gains or losses on investments are so measured. Unquoted fixed asset investments are valued at fair value in accordance with the IPEV guidelines.         
                                                                                                                                                    
The changes in fair value of such investments recognised in these Financial Statements are treated as unrealised holding gains or losses.

The launch of the B Share pool took place relatively recently in August 2018, and all but one of the B Share unquoted investments have taken place in the two years ending 31 December 2020. As these companies are at an early stage of the investment cycle, it is the Board’s view that the most appropriate valuation methodology is to hold the B Share unquoted investments at cost or in line with the price of the most recent investment received by the investee company. This is consistent with the approach adopted for the valuation of the Ordinary share pool’s unquoted investments.

When using this methodology however, a detailed assessment of the respective value of each portfolio company is also performed in order to gain the necessary comfort as to whether a fair value reduction or uplift is in fact required. This process involves a review of the progress made by each investee company, recent developments in the M&A market and comparisons to listed competitors across all relevant key performance indicators. Further, all of these are considered in the context of the exit equity waterfall structure as detailed in each investee company’s articles of association.

FRS 102 requires the Directors to consider the impact of changing one or more of the assumptions used as part of the valuation process to reasonable possible alternative assumptions. As noted above, whilst the methodologies adopted for the 31 December 2020 investee company valuations are not based on revenue or earnings multiples, the Board do consider revenue multiple based valuation methodologies in support of the valuations adopted where relevant. 

In view of the FRS 102 requirement, the Board have considered the impact that introducing reasonable alternative assumptions to this revenue multiple based valuation methodology could have on the value of the Company’s investment pool as at 31 December 2020.  

As a result of this analysis the Board have concluded that such reasonable possible alternative assumptions could result in an increase in the valuation of the B share pool unquoted investments by £81,000 or a decrease in the valuation of B share pool investments by £48,000. It was considered that only one B share portfolio company was relevant for this exercise due to its more mature trading profile.  It was not considered that any of the Ordinary share pool portfolio companies were relevant for this exercise.

Throughout this exercise, and in determining the value of the Company’s equity investments where trading multiples are considered, multiples used are reviewed and compared to industry peers, based on size, stage of development, revenue generation and growth rate, as well as their wider strategy and market position. These multiples are calculated in the traditional manner, by dividing the enterprise value of the comparable group by its revenue, EBITDA or earnings depending on what is the norm in a particular sector driven by how acquisitions in that sector are typically valued. The trading multiple is then adjusted for considerations such as illiquidity, marketability and other differences, advantages and disadvantages between the portfolio company and the comparable public companies based on company specific facts and circumstances.

11.              Debtors

  31 December 2020 31 December 2019
  £’000 £’000
Prepayments and accrued income 7 3

12.              Creditors

  31 December 2020 31 December 2019
  £’000 £’000
Amounts falling due within one year    
Trade creditors 1 8
PAYE/NIC 7 -
Awaiting B share allotment 154 170
Other creditors 23 22
Accruals 37 36
Total amounts falling due within one year 223 236
     
Amounts falling due after one year    
Accruals 193 53
Total amounts falling due after one year 193 53

The amount falling due after more than one year relates to the potential liability for a performance fee on the Ordinary share portfolio. More details are in note 6. The awaiting B share issue included in the combined and B share cash flow statements shows the movement in cash awaiting B share issue in the year since the prior year end.

13.              Share Capital

  31 December 2020 31 December 2019
  £’000 £’000
Allotted and fully paid up:    
8,115,376 Ordinary shares of 1p (2019: 8,115,376 shares of 1p)
9,062,948 B shares of 1p (2019 : 6,361,448)
81
91
81
64
  172 145

The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective as set on page 4.

During the year, the Company did not issue, nor buy back, any Ordinary shares.

The Company issued a total of 2,701,500 B shares at prices between 79.5 to 94.7p per B share during the year. These were issued pursuant to the offer for subscription for B shares launched on 16 July 2019 and a further offer for subscription for B shares launched on 13 October 2020 to raise, in aggregate, up to £10 million with an over-allotment facility of up to a further £10 million (before issue costs). The Company has not bought back any B shares.

The total proceeds received for the shares issued in the period was £2,390k (net of facilitated fees, gross of Seneca’s promoter fee) for the B share pool.

 

Share Rights

As regards Income: shareholders shall be entitled to receive such dividends as the Directors resolve to pay out in accordance with the Articles. Under the Articles of the Company, all the assets of the Company and all the liabilities of the Company will be allocated either to the Ordinary share pool or the B share pool. The Ordinary shares will be entitled to the economic benefit of the assets allocated to the Ordinary share pool and the B shares will be entitled to the economic benefit of assets allocated to the B share pool. Therefore, although the rules in the CA 2006 and elsewhere in relation to the payment of distributions will be applicable to the Company on a company-wide basis, the income arising on the portfolios will belong to one or the other of the share classes depending on which portfolio generated the income.

As regards Capital: similarly, the capital assets of the Company will be allocated to either the Ordinary share pool or the B share pool. On a return of capital on a winding-up or on a return of capital (other than on a purchase by the Company of its shares) the surplus capital shall be divided amongst the holders of the relevant share class pro rata according to the number of shares of the relevant class held and the aggregate entitlements of that share class. The Ordinary shares will not be entitled to any capital assets held in the B share pool and the B shares will not be entitled to any capital assets held in the Ordinary share pool. In relation to the purchase by the Company of its shares, the purchase of Ordinary shares may only be financed by assets in the Ordinary share pool and the purchase of the B shares may only be financed by assets in the B share pool.

As regards voting and general meetings: subject to disenfranchisement in the event of noncompliance with a statutory notice requiring disclosure as to beneficial ownership, each shareholder present in person or by proxy shall on a poll have one vote for each share of which he/she is the holder. The Ordinary shareholders may not be entitled to vote on certain matters which concern the B share class only and vice versa.

As regards Redemption: none of the B shares or the Ordinary shares are redeemable. The Articles provide that reserves (whether created upon the cancellation of the share premium account arising from the issue of Ordinary shares or B shares or otherwise) may also be used for the benefit of the other share class. While this will not transfer any net asset value between the different share classes, it will permit those reserves to be treated as distributable profits on a Company-wide basis such that on an accounting basis dividends and share buybacks in respect of both share classes may be facilitated by the availability of those reserves.

14.              Movement in Shareholders’ Funds

 

 
Year ended
31 December 2020
Year ended
31 December 2019
  £’000 £’000
Shareholders’ funds at start of year 8,384 9,281
Return on ordinary activities after tax 1,297 (715)
Increase due to issue of B shares 2,390 2,262
Dividend paid (1,301) (2,444)
Shareholders’ funds at end of year 10,770 8,384

The analysis of changes in equity by the various reserves are shown in the Statement of Changes in Equity on page 73.

When the Company revalues its investments during the period, any gains or losses arising are credited/charged to the Income Statement. Changes in fair value of investments held are then transferred to the capital reserve - holding gains/(losses). When an investment is sold any balance held on the capital reserve - holding gains/(losses) reserve is transferred to the capital reserve – gains/(losses) on disposal as a movement in reserves.

The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount at which the Company’s shares trade to net asset value, providing shareholder authority has been granted.

Distributable reserves are represented by the special distributable reserve, the capital reserve gains/(losses) on disposal and the revenue reserve reduced by negative holding reserves (if any) which total £5,429,000 as at 31 December 2020 (2019: £5,433,000). Although the distributable reserves total £5,429,000 as at 31 December 2020, only £2,002,000 is actually able to be distributed as the reserves contain £3,427,000 from the cancellation of the share premium account on the newly issued B shares, which cannot be distributed until the beginning of 2022 without breaching VCT rules.

An interim capital dividend of 8 pence per Ordinary share for the year to 31 December 2020 was paid on 28 August 2020. A further interim capital dividend of 5 pence per Ordinary share for the year to 31 December 2020 was paid on 30 October 2020.

An interim dividend of 1.5 pence per B share for the year to 31 December 2020 was paid on 15 May 2020. A second interim dividend of 1.5 pence per B share for the year to 31 December 2020 was paid on 24 December 2020.

15.              Financial Instruments

The Company's financial instruments comprise equity investments, cash balances and liquid resources including creditors.

Classification of financial instruments

The Company held the following categories of financial instruments, all of which are included in the balance sheet at fair value, at 31 December 2020 and 31 December 2019:

  31 December 2020 31 December 2019
  £’000 £’000
Financial assets at fair value through profit or loss    
Fixed asset investments 6,123 4,761
Total 6,123 4,761
     
Financial assets measured at amortised cost    
Cash at bank and in hand 5,056 3,909
Total 5,056 3,909
     
Financial liabilities measured at amortised cost    
Creditors
Accruals
Performance fee
31
37
193
30
36
53
Total 261 119

Fixed asset investments (see note 10) are valued at fair value. Unquoted investments are carried at fair value as determined by the Directors in accordance with the IPEV guidelines. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet. The Directors believe that the fair value of the assets held at the year-end is equal to their book value.

The Company’s creditors are initially recognised at fair value, which is usually the transaction price, and then thereafter at amortised cost.

16.              Financial Risk Management

In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are market risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date.

Market risk

The Company’s strategy for managing investment risk is determined with regard to the Company’s investment objective, as outlined on page 4. The management of market risk is part of the investment management process. The Company's portfolio is managed with regard to the possible effects of adverse price movements and with the objective of maximising overall returns to shareholders in the medium term. Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board.

Details of the Company’s investment portfolio at the balance sheet date are set out on pages 14 to 35.

29.4% (2019: 34.5%) by value of the Company’s net assets comprise investments in unquoted companies held at fair value. The valuation methods used by the Company include the application of a price/earnings ratio derived from listed companies with similar characteristics, and consequently the value of the unquoted element of the portfolio can be indirectly affected by price movements on the London Stock Exchange. A 10% overall increase in the valuation of the unquoted investments at 31 December 2020 would have increased net assets and the total return for the year by £317,000 (2019: £290,000) disregarding the impact of the performance fee; an equivalent change in the opposite direction would have reduced net assets and the total return for the year by the same amount.

27.4% (2019: 22.2%) by value of the Company’s net assets comprises equity securities quoted on AIM. A 10% increase in the bid price of these securities as at 31 December 2020 would have increased net assets and the total return for the year by £296,000 (2019: £186,000) disregarding the impact of the performance fee; a corresponding fall would have reduced net assets and the total return for the year by the same amount.

Credit risk

There were no significant concentrations of credit risk to counterparties at 31 December 2020 or 31 December 2019.

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Board carries out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date.

Liquidity risk

The Company’s financial assets include investments in unquoted equity securities which are not traded on a recognised stock exchange and which generally are illiquid. They also include investments in AIM-quoted companies, which, by their nature, involve a higher degree of risk than investments on the main market. As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.

The Company’s liquidity risk is managed and monitored on a continuing basis by the Board in accordance with policies and procedures laid down by the Board.

17.              Events After the Balance Sheet Date

The share price of SkinBio rose substantially since the year end when it was 22p and this allowed the Company to sell a total of 1,750,000 SkinBio shares from the B share pool in January 2021 for a total of £621k and generating a profit versus original cost of £341k (a 2.2x return on the original investment).

In addition the Company was able to realise nearly 50% of its holdings in Abingdon Health Plc (“Abingdon”) for a small profit. The Company sold a total of 78,000 shares in Abingdon from the B share pool in January 2021 for a total of £76k at 98 pence per share.

One additional unquoted investment was made in the B share pool in January 2021 into Solascure Ltd. for £500,000.

Following recent press coverage, the share price of Scancell rose significantly from 13.5p at 31 December 2020 and was 24.5p at 19 February 2021 and this allowed the Company to take the opportunity to sell 1,000,000 Scancell shares from the Ordinary share pool in February 2021 at 21.7p per Scancell share.

As a result of the above, the Company is pleased to announce an updated unaudited NAV of 99.4p per B share and 44.0p per Ordinary share at 19 February 2021.

The Company also declared an interim B share dividend of 1.5p per B share on 18 February 2021 to be paid on 14 May 2021 to shareholders on the B share register on 30 April 2021, with an ex-dividend date of 29 April 2021.

The Directors are not aware of any other post balance sheet events which need to be brought to the attention of shareholders.

18.              Contingencies, Guarantees and Financial Commitments

There were no contingencies, guarantees or financial commitments as at 31 December 2020 (2019: £nil).

19.              Related Party Transactions

The Board acted as the investment manager of the Company until Seneca was appointed on 23 August 2018. Certain Directors are entitled to participate in a performance bonus as detailed in note 6. During the year, Seneca has earnt £127,000 in management fees (2% of the weighted average net assets of the B share portfolio) (2019: £103,000). However, only £41,000 is recoverable by Seneca as a result of the cost cap, as detailed in note 3 and this was paid to Seneca during the year (2019: £28,000).

Seneca as Investment Manager accrued £76,191 (2019: £138,132) transaction fees and directors’ fees from investee companies in relation to the arrangement and monitoring of investments. As a related party, we believe that this transaction is disclosable, and the Board ensures it is managed from a conflicts of interest point of view. Seneca may also become entitled to a performance fee. See note 3 to the financial statements for more information on these fees.

As detailed in the offer for subscription document dated 13 October 2020, Seneca (as promoters of the Offer) is entitled to charge the Company up to 5.5% of investors’ subscriptions. A total of £6,595 has been paid to Seneca, based on the allotments of £2,396,950 (net of facilitated fees, gross of the promoter fee) as at 31 December 2020 (2019: £20,294).


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Disclaimer

Final Results and NAV Update THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED.  ON PUBLICATION OF THIS …

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